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Nomura HD facing bad business results. On rough road to recovery

2, 18. 2009

   Nomura Holdings, Inc. is suffering from deteriorating business outcome. The company was directly hit by the financial crisis before it could have a moment to rest after taking care of losses related to the problem of the U.S. high-interest housing loans for low-income people (subprime loans). The company incurred a loss reaching 342.9 billion yen on its consolidated account settlement for the Oct.-Dec. quarter of 2008 (by the American accounting standard), for an accumulated loss of massive 492.3 billion year for nine months between April and December of 2008. Having purchased the Asian and European units of Lehman Brothers, the company was seen at first to become aggressive. On its account settlement, however, its difficult position was conspicuous.

Aggressive overseas investments went wrong

   "The loss is only a temporary occurrence. As there is an effect of buying up of the Lehman units, early business recovery of business outcome is aimed at."

   This statement was made by Masashi Nakata, who is responsible for the financial affairs of the company, when he announced the company's account settlement in late January 2009. He expressed his confidence for a "V-shaped recovery" from the loss. But the damage was too deep to take his words. It was impossible conduct securities trading to avoid losses because of the financial crisis. The loss grew to almost 150 billion yen.

   The company's aggressive overseas investments brought results counter to its expectation. The company declared losses of 43.1 billion stemming from the investments in bonds issued by Iceland banks and 32.3 billion yen related to former Nasdaq chairman Bernard Madoff's alleged securities fraud. It reported the payment of 6.03 billion yen for the purchase of the Lehman units, including the personnel cost. The losses declared for the Oct.-Dec. quarter totaled more than 240 billion yen. The company is expected to be in the red on its settlement account for the whole of the term ending in March 2009. It will be the second consecutive full term for the company to be in the red. The red figure is likely to reach the record high.

   To take responsibility for the big loss, bonuses for the executives will be cut fully, and the dividend payments for the shareholders will be passed for the Jan.-March 2009 term. The company further plans to cut labor and other costs by 10% for the term ending in March 2010.

   While no sign of an end to the financial crisis is seen, the company is placing the hope on the "Lehman effect". Taking advantage of the contacts and know-how of the former employees of the Lehman units the company purchased, the company "is handling an increased number of M&A (merger and acquisition) cases," according to an executive of the company. He said the company is planning to saturate its name value into various overseas areas where the company has not been known well in the past by setting up outposts in Europe and Asia, aiming at pushing up revenue.

Key is if ex-Lehman staff can get along well with Nomura

   It is unpredictable, however, how well the former workers of Lehman can adapt themselves to get along well with Nomura counterparts. Some executives of a major securities company says that the employees of foreign-invested companies who seek promotions by changing working places will find it difficult to get along with the corporate culture of Nomura HD. If capable employees of Lehman decide not to come to Nomura, "the effect of the acquisition will drop off," he said.

   As Nomura HD began studying the possibility of merging Joinvest Securities, its wholly invested subsidiary specialized in trading on the internet, with Nomura Securities, some of the employees are left with uneasiness about the restructuring of conducting business with individual investors. Joinvest Securities has been trying to become an independent company, and this was why it avoided crowning its company name with "Nomura". Nomura HD does not admit it made a mistake by saying "fruitful result could be achieved". But the hole left on the business for individual investors shows the trouble facing Nomura HD.

   It is unpredictable when the loss of Nomura HD hit the bottom as noted by an analyst, and the company is certain to go on a rough road for some time to come toward recovery.

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