Nomura America Finance, LLC — Moody’s affirms Nomura Holdings’ Baa1 ratings; changes outlook to negative
Rating Action: Moody’s affirms Nomura Holdings’ Baa1 ratings; changes outlook to negativeGlobal Credit Research – 31 Mar 2021Tokyo, March 31, 2021 — Moody’s Japan K.K. has affirmed the Baa1 long-term issuer and senior unsecured debt ratings of Nomura Holdings, Inc. (Nomura) and the Baa1 backed senior unsecured debt ratings of Nomura America Finance, LLC, as well as the A3 issuer ratings of Nomura Securities Co., Ltd.At the same time, Moody’s has changed the ratings outlook to negative from stable reflecting Nomura’s higher-than-anticipated risk appetite or potential deficiencies in its risk management process, as highlighted by a material loss from a client related transaction in its US subsidiary. The loss also highlights the ongoing challenges Nomura faces in improving and stabilizing its profitability particularly in its international wholesale business, without engaging in high risk activities.The rating action is in response to Nomura’s announcement on March 29, 2021 that it could incur approximately $2 billion in losses arising from transactions with a US client.The affirmed ratings are as follows:Nomura Holdings, Inc.LT Issuer Rating (Foreign): affirmed at Baa1Senior Unsecured (Foreign): affirmed at Baa1Senior Unsecured Shelf (Foreign): affirmed at (P)Baa1Senior Unsecured MTN (Foreign): affirmed at (P)Baa1Outlook: changed to negative from stableNomura Securities Co., Ltd.LT Issuer Rating (Domestic and Foreign): affirmed at A3Commercial Paper (Domestic): affirmed at P-2Outlook: changed to negative from stableNomura America Finance, LLCBACKED Senior Unsecured (Domestic): affirmed at Baa1Outlook: changed to negative from stableRATINGS RATIONALEThe change in outlook to negative reflects Nomura’s willingness to accept large counterparty exposures without sufficient risk mitigants, which include higher collateral requirements. The magnitude of the potential loss also highlights the difficulties Nomura has in managing the risks of large complex transactions.The affirmation of Nomura’s Baa1 ratings reflect the company’s strong financial performance to date in fiscal 2020 and strong capitalization. The estimated loss of $2 billion is less than Nomura’s net income earned in the first 3 quarters of fiscal 2020, which totaled JPY309 billion or $2.8 billion.The impact of the potential loss on Nomura’s capitalization will also be limited to less than two percentage points from its December 2020 common equity Tier 1 (CET1) ratio of 17.7%, which will result in a higher ratio than the 15.3% at the end of fiscal 2019. Nomura’s strong risk adjusted capitalization has been one of the company’s credit strengths and it remains so, even if the full $2 billion potential losses are realized.Nomura Securities’ A3 long-term issuer ratings incorporate a three-notch uplift from its Baa3 standalone assessment, reflecting our assessment of a very high likelihood of government support for the company in times of stress. Nomura is the largest capital market company in Japan by revenue.The Baa3 standalone assessment reflects its strong domestic retail and wholesale franchise, volatile overseas profitability, strong risk-adjusted capitalization, but high nominal leverage, and adequate liquidity and funding.The standalone assessment also reflects a positive qualitative adjustment for business diversification and a negative qualitative adjustment for the opacity and complexity of its operations.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWhat Could Change the Ratings — UpUpward rating pressure is unlikely, given the negative outlook.The rating outlook could return to stable if the large loss in its US subsidiary is an isolated incident and the company returns on track to earn Yen280 billion in pretax profits by fiscal 2022 (period ending on 31 March 2023), while improving controls to limit tail risk and large losses in the future.What Could Change the Ratings — DownWe could downgrade the ratings if Nomura is unable to earn Yen280 billion, in pretax profits by fiscal 2022, either due to large losses in its wholesale segment; the inability to improve retail segment profitability; or tighter controls reduce business opportunities and profit margins. We could also downgrade the ratings if Nomura increases illiquid or higher-risk assets; increases leverage; reduces liquidity; or increases reliance on shorter-term funding.The principal methodology used in these ratings was Securities Industry Market Makers Methodology (Japanese) published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187336. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Nomura Holdings, Inc. is a Japanese holding company. Its subsidiaries provide investment and financial services to individuals, corporations, institutions and government agencies in Japan, the US, Europe and Asia. As of 31 December 2020, Nomura reported total consolidated assets of JPY44.6 trillion.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Shunsaku Sato VP – Senior Credit Officer Financial Institutions Group Moody’s Japan K.K. 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