Provisions cause surprise loss at Nomura
TOKYO: Nomura Holdings, the largest Japanese brokerage company, on Friday posted a surprise quarterly loss of $1.5 billion on its exposure to bond insurers and warned that it could still be at risk for further losses related to the credit crisis.
Nomura said the deepening global credit crunch had prompted it to set aside provisions of 132 billion, or $1.27 billion, against losses related to contracts with so-called monoline insurers, which insure against the risk of a bond or another security defaulting.
The company, whose competitors include Daiwa Securities, Goldman Sachs and Morgan Stanley, also said that it had booked 22 billion in appraisal losses on its commercial mortgage-backed securities, or CMBS, business.
“The main reason for this earnings result is the deterioration of the monoline insurers,” said Nomuras chief financial officer, Masafumi Nakada.
“We included the impact of monolines and CMBS as much as possible but we cant really say that we have no risk in the future.”
Nomura reported a net loss of 153.85 billion in the quarter through March, compared with a profit of 33 billion a year earlier.
“It is a very negative surprise,” said Wataru Kasatani, senior research analyst at Meiji Dresdner Asset Management. “Another negative surprise is that Nomura had this much exposure to monoline insurers. The market will react a lot to that.”
Nakada said the financial health of monoline insurers had deteriorated so much that they were not able to pay Nomura what they had guaranteed, forcing it to increase the provision.
Nomura posted a 111.8 billion loss from bond trading in the quarter through March, against a 97.5 billion profit in the year-ago period.
The quarterly loss dragged Nomura to a net loss of 67.85 billion for the fiscal year ended March, its first annual loss in nine years and reversing a 175.8 billion profit in the previous year.
Monoline bond insurers guarantee timely interest and principal payments on debt that can consist of municipal bonds, corporate debt and asset-backed securities like residential mortgages, which are insured in vehicles known as collateralized debt obligations.
