Nomura Writedown Closes Chapter on Turbulent Lehman Saga

(Bloomberg) -- Nomura Holdings Inc. finally admitted that the two deals which underpinned its transformation into a global investment bank didn’t add much value to shareholders.

Japan’s largest brokerage disclosed an 81.4 billion yen ($749 million) charge Thursday related to its 2008 acquisition of Lehman Brothers Holdings Inc. operations in Europe and Asia, and its $1.2 billion purchase of electronic brokerage Instinet the previous year. After the charge, Nomura said it no longer carries any goodwill from those deals.

The writedown is a punctuation of sorts in an overseas expansion saga that’s led Nomura investors from despair to hope, and back again. The firm said it conducted “a more conservative assessment” of the profitability of its wholesale division, which houses the old Lehman and Instinet assets.

Nomura Writedown Closes Chapter on Turbulent Lehman Saga

“Trading business that relies on the balance sheet has probably reached its limit, so we have decided to remove optimistic expectations toward our wholesale business through booking the impairment charge,” Chief Financial Officer Takumi Kitamura said after announcing Nomura’s second consecutive quarterly loss for the three months ended Dec. 31.

The result piles pressure on Chief Executive Officer Koji Nagai, who has failed to sustain profits abroad during his more than six years in charge and now faces headwinds at home as individual investors shun stocks. Nagai has ordered up a comprehensive review of Nomura’s businesses, and expects to present the results as soon as April, Kitamura said.

Market Turbulence

Goodwill is the difference between the acquisition price and the fair value of the target’s net assets. A goodwill writedown is a recognition that the value of the acquisition has permanently declined.

The charge pushed Nomura into a net loss of 95.3 billion yen in a quarter where the firm was slammed by turbulence in global equity and bond markets. Overseas operations lost money for a fourth straight period, while at home, the worst quarter in a decade for Japanese stocks led to a drop in brokerage commissions and hurt sales of investment trusts.

The equity slump also afflicted rival Daiwa Securities Group Inc., which this week posted the lowest quarterly profit in six years.

Kitamura said Nomura is closely reviewing each of its businesses given the tough operating environment. Conditions for the fixed-income operation will remain severe for the time being, he said in Tokyo.

Nomura Writedown Closes Chapter on Turbulent Lehman Saga

Nagai, 60, signaled in a December interview that he may trim staff in Europe, the bank’s worst-performing region in recent years. Nomura is ready to cut as many as 50 employees from its global trading division, mainly in Europe but also in Asia and the U.S., the Financial Times reported earlier this week. Fixed-income desks face the brunt of the cuts, along with the emerging markets team in London, the newspaper reported.

For the nine months ended December, Nomura has lost 101.3 billion yen, putting it on course for its first annual net loss since the year ended March 2009. The Tokyo-based firm incurred a massive increase in staffing costs that year following its purchase of the Lehman operations during the global crisis.

One bright spot for Nomura last quarter was an increase in investment banking fees, thanks in part to its role managing the initial public offering of SoftBank Group Corp.’s telecom unit, the biggest debut share sale in Japanese history.

Shares of Nomura closed 1.3 percent higher in Tokyo before the results were published. The stock has risen 5 percent this year after slumping 37 percent in 2018.

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