TOKYO – Japanese investment bank Nomura on Friday announced a 63.5% drop in pre-tax profit for the first fiscal half of the year ended last month, after recording a charge of 39 billion yen ( $ 343 million) to cover a possible loss in a US business lawsuit.
The exchange took place more than a decade before the Lehman crisis and is unrelated to it, Takumi Kitamura, chief financial officer of Nomura, said at a press conference.
Kitamura declined to provide further details on the disposition. “It is very unfortunate that we had to recognize such a loss, even though it was for a transaction that took place a long time ago,” he said. “It is difficult to eliminate all the risks associated with doing business abroad.
He added that Nomura will work to ensure that such an incident does not even happen again in 5 or 10 years.
For the first half of April-September, profit before tax fell to 97 billion yen from 265 billion yen in the same period last year. Revenue fell 16% to 784 billion yen.
The results reflect the turmoil in the US financial markets as investors worried over the period of possible monetary tightening by the US Federal Reserve, Kitamura said. For a broker like Nomura specializing in fixed income products, “it was a tough market environment,” he said.
In contrast, investment banking posted a strong performance for a fourth consecutive quarter, as M&A advisory and equity issuance fees jumped in Japan and overseas.
Nomura’s profit decline follows a $ 2.87 billion loss in its business with US family office Archegos Capital Management in March and illustrates its challenge in managing risk in its US operations.
The business of investment banking in the United States includes trading and investment banking. It was the main driver of profit last year, but has also proven to be a source of earnings volatility, presenting CEO Kentaro Okuda with a challenge on how to achieve more stable, albeit less stellar, earnings.
Nomura announced on Friday that it has established a board-level risk committee to further strengthen its global risk management. The committee is chaired by an external director and is responsible for formulating a risk management framework. Nomura also announced an increase in the number of risk managers in all divisions.