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03 December 2023

Nomura to raise $3.3bn as Lehman costs weigh

The capital base of Japan’s largest brokerage has diminished after it invested in Lehman Brothers. (REUTERS) 

By Reuters
Nomura Holdings Inc will issue up to $3.3 billion (Dh12.14 billion) in new stock to replenish a capital base depleted by soured investments and its acquisition of parts of failed investment bank Lehman Brothers.

Nomura bought the Asian, European and Middle East operations of Lehman last year, aiming to use them as a platform to expand outside its mature home market and compete head-to-head with the leading Western investment banks.

But Nomura has had to pay large sums to keep Lehman talent and absorb other costs just as the financial crisis tore through all of its major businesses. Last month it posted a record quarterly loss of ¥342.9 billion (Dh14 billion).

The new share offering will be its first since early 1989 when Japan was at the height of its economic and share price bubble. It also comes amid persistent investor doubts over Nomura's growth prospects.

Nomura's stock has lost more than 60 per cent of its value since it announced the acquisition of the Lehman assets in late September, versus a one-third fall in the benchmark Nikkei average.

"Nomura needs to expand and is asking investors to take a bet that it can deliver growth," said Azumo Ohno, a brokerage analyst at Credit Suisse Securities in Tokyo. "Nomura is taking a chance by boosting its capital with shares."

Japan's largest brokerage said in a statement that it has registered to issue up to ¥300 billion in stock over a period of one year from February 19, confirming an earlier report on the fund-raising by Reuters.

Nomura Chief Financial Officer Masafumi Nakada had said last month at the company's earnings briefing that it might boost its capital again, following the sale in December of ¥410 billion worth of bonds.

The bonds boosted Nomura's Tier 2 capital by 40 per cent to ¥1 trillion, but did not lift its higher quality Tier 1 capital, which dropped by about a fifth to ¥1.47 trillion following the massive loss in the October-December quarter.

Nomura has likely decided to issue common shares to bolster Tier 1 capital and widen the gap with Tier 2, Ohno said.

Japanese banks have rushed to raise capital to fund acquisitions or replenish finances dented by fallout from the economic crisis. The country's top lender, Mitsubishi UFJ Financial Group, said on Friday it would issue preferred shares, just months after it raised $8.6 billion.

Nomura said it would use funds raised to invest in its consolidated subsidiaries and declined to elaborate.

Nomura would like to raise the funds by the end of the current financial year on March 31, though it may limit the issue or cancel it altogether if market conditions are too weak, sources with knowledge of its plans told Reuters.

The broker wants to put the money towards growth opportunities, including the Lehman business, the sources said.

One market analyst said the issue would likely draw healthy demand from investors. Nomura's stock is trading with at a price-to-book ratio of 0.6, indicating the market is valuing it at far less than what it theoretically could be liquidated for.

"It, of course, depends on the discount at which the shares are offered but I would expect there to be fairly strong demand with the stock price at such low levels," said one market analyst who asked not to be identified.

Nomura's stock closed on Friday at ¥572, before the share offer announcement. If ¥300 billion worth of stock were issued at that price, it would boost the company's number of outstanding shares by about 27 per cent.