Nomura Holdings Inc, Japan's largest brokerage, posted its third consecutive quarterly net loss on Tuesday as financial market turmoil led to big trading losses and discouraged companies from issuing shares or making deals.
Nomura, which last month bought Lehman Brothers' operations in the Asia-Pacific region, Europe and the Middle East, also warned of potential losses on exposure to crisis-hit Iceland and further write-downs on its stake in Fortress Investment Group. The outlook for Japan's brokerage sector remains bleak with the benchmark Nikkei average sliding to a 26-year low this week, depressing trading commissions and demand for capital raising, mergers and other fee-generating deals.
"I just don't see any light at the end of the tunnel," said Yuin Lim, who covers the brokerage sector at CLSA. Nomura posted a net loss of 72.9 billion yen ($781.6 million) for July-September, compared with an 11.7 billion yen net loss a year earlier and the average forecast for a 56.8 billion yen loss from two analysts polled by Reuters Estimates.
Nomura said it may need to further write down its shares in Fortress and revealed that it holds a $425 million position exposing it to Iceland, which has fallen into crisis as its top three banks folded and its currency crumbled. "Management takes it very seriously that we have posted three consecutive quarterly losses. We feel a sense of crisis and are now working on how to improve the situation," Nomura Chief Financial Officer Masafumi Nakada told reporters.
Nomura owns 55 million shares in the US investment firm Fortress. The Japanese brokerage needs to take "appropriate measures" on the shares as their book value, which had been $12, fell below $4 recently, Nakada said. The loss in value in Fortress shares dragged down Nomura's earnings in the previous quarter.
Nomura may also post losses from its bond investments in banks in Iceland, Nakada said. Nomura had bought credit default protection on the Iceland bank bonds from Lehman Brothers, but Lehman's bankruptcy may mean that Nomura has lost some of that protection.
The Japanese brokerage, which posted a 12 billion yen loss in a decline in value in its real estate holdings, had 190 billion yen worth of exposure to real estate at the end of September, Nakada said.
Turnover on the first section of the Tokyo Stock Exchange fell to a daily average of 2.2 trillion yen in July-September compared with 3 trillion yen a year earlier, according to figures provided by the exchange. Capital raising plans have also been shelved. Japanese companies sold $1.8 billion worth of shares in the latest quarter, 61 percent less than in the same period in 2007, and Nomura fell from being the top underwriter to the No 7 spot, Thomson Reuters data shows. The loss comes on top of a 76.6 billion yen net loss in the quarter ended June 30, when Nomura booked provisions against monoline insurers, who insure against the risk of debt defaults, and wrote down its investment in Fortress.
"We'll take advantage of the wholesale business we took over from Lehman to regain our business momentum," Nakada said. Nomura spent $2 billion to take over Lehman Brothers businesses. The unified company has potential to generate about $5 billion in pretax profit if the market recovers, Nakada said.
Shares in Nomura touched their lowest level since 1998 on Tuesday and have lost more than half their value since the beginning of this year, though still outperforming the Tokyo stock market's securities index, ISECU.which has fallen about 70 percent. Prior to the announcement, Nomura's shares rose 0.2 percent to 906 yen. Daiwa Securities Group, Japan's second-largest broker, is scheduled to report its earnings on Friday.