TOKYO (excerpted from Nikkei Asia) — Nomura Holdings on Monday warned of a potentially hefty loss at one of its U.S. subsidiaries after the Japanese financial services company and global peers were caught up in a share selloff on Friday involving an American investment firm.

Nomura’s shares closed down 16.33% in Tokyo after the company revealed the potential loss stemming from transactions with a U.S. client after an “event” on March 26. Nomura said the claim against the client — understood to be private investment firm Archegos Capital — was an estimated $2 billion, based on market prices last Friday. That could change as the market fluctuates and the transactions in question unwind.

“Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results,” the financial services company said in a news release.

Credit Suisse has made a similar announcement, and like the Japanese group, declined to name the client involved. “A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions,” the Swiss bank said.

Nomura did not elaborate on the nature of the event, though officials at the bank said the transaction involved Nomura’s prime brokerage business, which handles orders from hedge funds.

Nomura also canceled a planned bond issuance because of the potential impact on the company’s financial results.

The announcement casts a cloud over the Japanese brokerage giant, which has enjoyed robust results over the past year thanks largely to its American operations. The company reported a record pre-tax profit of 396.8 billion yen ($3.6 billion) for April-December, up 45% on year. Almost all of the profit increase came from trading operations in the U.S. In its earnings announcement last month, Nomura said its performance was comparable with that of U.S. investment banks.

The company’s shares had been trading at a three-year high last week.

CEO Kentaro Okuda, who assumed the position in April last year after working for many years as an investment banker, told investors in December that Nomura had grown out of the boom-bust cycle of the financial markets and would be able to generate steady revenues regardless of market conditions.

In its statement Nomura said its consolidated Common Equity Tier 1 ratio — a measure of the strength of its balance sheet — was over 17% at the end of 2020 and therefore substantially higher than the minimum regulatory requirement.

Excerpted through the professional courtesy of Nikkei Asia, the distinguished news and analysis portal of the Asia-Pacific region.

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