Nomura downgraded after $3.8 billion Q3 loss

Nomura Holdings, Japan's leading brokerage, has announced a third quarter loss of ¥342.9 billion ($3.8 billion). The financial services company said the losses were driven by a series of "one-off" losses from exposure to Madoff funds, Icelandic banks, monoline insurers, real estate, investment securities and the acquisition of Lehman Brothers' Asia Pacific operations, as well as tumultous market conditions.

"One-off" losses amounted to a deficit of ¥243 billion before tax in the third quarter ending on December 31, 2008. Trading losses caused by turmoil in the financial markets were responsible for a further ¥147 billion in pre-tax losses. Meanwhile, net revenue fell steeply to negative ¥49.7 billion, a 138.8% decline from the second quarter's figure of ¥128.1 billion.

Standard and Poor's have since downgraded Nomura Holdings' long-term counterparty credit rating from A- to BBB+. "The one-notch downgrades reflect larger-than-expected losses by the group as a result of the unprecedented financial turmoil in the third quarter," S&P revealed in a statement. Moody's Investors Services has placed Nomura Holdings on review for possible downgrade.

Nomura's global markets division booked a pre-tax loss of ¥295.5 billion. Credit and derivatives trading losses from exposure to Madoff totalled ¥32.3 billion, while losses from its exposure to Icelandic banks amounted to ¥43.1 billion.

The acquisition of Lehman's Asia Pacific franchise increased non-interest operating expenses by 12.6% year-on-year to $277.2 billion. The firm also had an exposure of $502 million to monoline insurers through credit derivatives, up from $234 million at the end of the previous quarter.

Global investment banking fared little better with a pre-tax loss of ¥19.9 billion. The acquisition of Lehman's operations increased non-interest expenses by 59.5% year-on-year to ¥73 billion.

Nomura acquired Lehman Brothers' Asia-Pacific operations after the former US investment bank filed for Chapter 11 bankruptcy on September 15. Total third quarter expenses related to the acquisition amounted to ¥60.3 billion. Nomura said, however, that Lehman's franchise had strengthened its presence in the cross-border mergers and acquisitions market.

In response to the results, Nomura plans to expand its client base, move away from non-core businesses, reduce its assets and cut expenses. The company has also announced that it will not pay a fourth quarter dividend and will adjust its dividend policy for the following financial year, beginning on April 1 2009.

See also: Citi hit by $8.9 billion Q4 loss, splits company;
JP Morgan Q4 net income plunges 74%