Nomura reveals subprime hit

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Nomura Securities revealed a doubling of losses stemming from the US residential mortgage-backed securities market as it cut jobs at its US fixed-income operations.

Confirming plans to withdraw from the US RMBS market, Japan’s biggest broker said Monday that it expected to report a Y73bn ($622m) loss related to US mortgage business, in addition to a similar-sized loss accumulated over the previous two quarters – bringing its subprime-related losses to Y145.6bn.

As part of the withdrawal, it plans to cut US headcount by a third to about 900 people as part of a broad restructuring.

Nomura said the subprime hit would wipe out second-quarter profits, dragging it to a pre-tax loss of between Y40bn and Y60bn for the second quarter.

Asia’s banks have so far shown few signs of impact from the subprime crisis and the credit squeeze.

Nomura’s top three representative directors – including Nobuyuki Koga, chief executive – will take a 30 per cent cut in remuneration until the end of the fiscal year next March, while other executives will take cuts of between 10 and 20 per cent because of the losses.

“Nomura has faced challenges in the US residential mortgage-backed securities market which have led to these disappointing results,” Mr Koga said. “However, we have moved decisively to deal with the issue and have avoided further and protracted losses by taking firm and immediate action.”

Nomura’s exit from the US RMBS market comes as leading banks have unveiled large losses related to problems in the US subprime loan market. Citibank unveiled $3.3bn in third-quarter write-downs related to subprime, leveraged loan and fixed-income credit exposure, while UBS took a $3.4bn hit.

The US cutback highlights the difficulty Nomura faces in realising its ambitions to expand internationally. It is pulling out of market-making in US Treasuries, asset-backed securities and futures-related business and closing its fixed-income operations in Chicago and Los Angeles.

Nomura will, however, maintain its derivatives business and focus on other profitable areas, such as the equity brokerage business and asset management.

Mr Koga conceded Monday that “there is a limit to what we can do in pursuing business in the US with a very weak customer base”.

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