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13th May 2022

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Nomura’s Archegos losses hit $2.9bn as prime brokerage head suspended

Nomura said its total loss from the implosion of Archegos Capital would hit almost $2.9bn, as people close to the Japanese bank said it had indefinitely suspended its global head of prime brokerage operations.

The financial blow to the country’s biggest brokerage is considerably greater than the approximately $2bn loss that Nomura initially flagged when the debacle involving the highly leveraged family office first came to light in late March.

The losses from Bill Hwang’s Archegos, which Nomura has not officially named and refers to as “a US client”, drove the bank to its biggest quarterly loss since the 2008 global financial crisis. It has also prompted Nomura to make pledges that it would fortify its risk management systems.

Two people close to Nomura said that, as a direct result of the Archegos incident, the company had indefinitely suspended Dougal Brech, the UK-based head of the prime broking unit that had nurtured Hwang as a client and who had formerly worked at Credit Suisse. The Japanese bank said on Tuesday that it was not planning any big strategic changes to the wholesale banking unit under which its prime brokerage business sits.

Swiss bank UBS also said on Tuesday it had lost $774m from trades linked to Hwang’s fund, marring an otherwise robust set of first-quarter earnings, with the bank’s net profits rising 14 per cent from a year earlier to $1.8bn.

The hit to Nomura from the collapse of Archegos is second only to that of Credit Suisse, which revealed a $4.7bn loss from the blow-up of the family office earlier this month. Morgan Stanley and two of Japan’s largest megabanks have also taken a hit.

Nomura’s losses left a $2.3bn dent in its profits for the financial year that closed on March 31. But the process of unwinding the Archegos positions, which Nomura said was 97 per cent complete, has created an additional loss of $570m that analysts said would hurt its performance in the quarter that ends in June.

They have revived questions over whether the Japanese bank’s efforts to pursue overseas growth have prompted it to embrace more risk than it can handle, given the relatively small scale of its operations in the US.

Nomura said on Tuesday that it had appointed Christopher Willcox, the former head of JPMorgan Asset Management, as the co-chief executive of its US unit.

With concerns swirling around whether other family offices have also been extended the scale of financing granted to Archegos, Nomura said in a presentation that accompanied the results that it had conducted a full review of existing prime brokerage transactions. “We . . . reviewed positions in other financing-related businesses confirming no other similar transactions,” the presentation said.

The net loss of ¥155.4bn ($1.4bn) for the January to March quarter shattered Nomura’s hopes for what was on course to be a record year of profits, driven in large part by a strong performance of its historically volatile US business. 

Without the Archegos collapse, said investors, Nomura’s rebound in 2020 would have been a dream start for Kentaro Okuda. Its former investment banking head started as chief executive a year ago and was the company’s first leader drawn from outside the core domestic brokerage business.

Instead, Okuda’s first full-year results announcements began with an apology and a pledge to improve risk management.

Nomura’s net profits for the full year that ended in March were $1.4bn, down 29 per cent from fiscal 2019. Despite the hit to the wholesale business, full-year profits at Nomura’s retail and asset management segments grew 87 per cent and 158 per cent year on year, respectively.

Shunsaku Sato, a senior credit officer at rating agency Moody’s Japan, said those gains “highlighted the importance of profit contributions from the two segments in stabilising the company’s overall profitability”.

2021-04-27 08:20:16


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