In the red
Few bosses have such an abrupt end to a honeymoon as Nomura’s Kentaro Okuda. The Japanese bank originally expected to report its best year in more than a decade on Tuesday thanks to busy trading in the last fiscal year. Instead a $2.3 billion loss from the blowup of U.S. fund Archegos chopped earnings in half. A bruised Okuda gets to start his second year $570 million in the red and must rebuild, again, the reputation of his investment bank.
Net profit for the 12 months ending March 31 came to 153 billion yen ($1.4 billion), 58% below analysts’ median forecasts made before Nomura warned of losses from Archegos, the family office fund whose collapse punched holes in the balance sheets of Credit Suisse, Morgan Stanley and UBS among others. Nomura’s total hit of $2.9 billion, some of which will hit its books only in the current financial year, is the worst after Credit Suisse’s $4.7 billion loss.
Investors will weigh the losses in the context of otherwise strong annual numbers. Pre-tax profit at Nomura’s retail division almost doubled while its asset management arm did better still. Both units maintained tight cost control, which should please shareholders. But these numbers also highlight how much $17 billion Nomura relies on its investment bank to give it heft and zing.
The bank’s leaders appear humble, and they have promised transparency. More detail on how exactly this happened would certainly be welcome. An independent, externally-led inquiry is underway and the bank is strengthening its risk controls. The most tangible action so far is hiring Christopher Willcox, veteran of JPMorgan and Citigroup, as co-head in the Americas.
Yet if Nomura insiders are irritated by constant references to its disastrous purchase of Lehman’s European and Asian units 12 years ago – and many are – they can expect more of the same over Archegos. In addition to halving earnings, the debacle has put paid to a nice stock rally. Okuda himself acknowledged in a December speech that he needed to overcome the perception of instability around Nomura’s investment bank. Archegos just made that job tougher. The honeymoon is over; time for Okuda to roll up his sleeves.