Nomura flags $2bn loss from single client in US and cancels bond sale

Shares of Japan's biggest brokerage and investment bank droped as much as 16%, most in more than a decade

A Nomura logo at the Japanese company's office in the Manhattan, New York. The investment bank flagged $2bn in potential losses on Monday at its US unit. Reuters

Nomura Holdings on Monday flagged a possible $2 billion loss at a US subsidiary, prompting Japan's biggest brokerage and investment bank to shelve a hefty bond issuance and sending its stock tumbling by the most in over a decade.

Nomura's stock was greeted by a deluge of sell orders at market open, pushing its price down as much 16 per cent in early trade.

The $2bn hit was derived from transactions with a US client, it said in a statement on Monday. Nomura based the estimate on market prices as of March 26 and said it could change depending on the unwinding of the transactions and market fluctuation.

Credit Suisse Group on Monday also said it may face a significant loss in the first quarter related to an unnamed US hedge fund client defaulting on margin calls, the latest blow to the Swiss lender after a string of recent hits.

It is too early to quantify the exact size of the loss, “it could be highly significant and material to our first quarter results”, Bloomberg reported citing a statement from the Zurich-based bank. Credit Suisse said it and other banks are exiting positions related to the client.

The announcements came after a series of block trades in the US on Friday that investors said caused drops in the stock prices of numerous companies. The trades were linked to sales of holdings by Archegos Capital Management, according to sources.

Nomura's loss was related to Archegos' trades, Bloomberg reported citing sources, one of whom said Archegos was a prime brokerage customer of Nomura.

Reuters calls to Archegos' New York office on Sunday local time went unanswered. Nomura declined to comment on any relationship with Archegos.

Nomura said it is assessing the impact of the potential loss on its consolidated earnings for the year ending March 31 – scheduled for release on April 27 – and would cancel the planned issuance of $3.25bn in senior notes.

"As long as these losses are one-off in nature, 1H FY3/22 should be the timing of recovery, thus the impact on the longer-term outlook is relatively limited," Jefferies analysts wrote in a research note.

Just last month, Nomura expressed confidence in sustaining high earnings after booking a 23 per cent year-on-year rise in April-December net profit at ¥308.5bn ($2.82bn), having reported its best third quarter in 15 years on solid global markets and investment banking.

The recent performance has been driven by its US business, which includes investment banking and equity and bond trading.

"Nomura Holdings should be able to absorb losses of this size," one broker said, declining to be identified.

"It does raise a question of whether there are losses at other Japanese investment banks that just haven't been revealed yet, but at this point it looks like this problem only affects Nomura. This is not something that will bring down the entire equity market."

Chief cabinet secretary Katsunobu Kato on Monday said the government would monitor the situation carefully and that the Financial Services Agency would share information on the matter with the Bank of Japan.