Tokyo, March 08, 2022 -- Moody's Japan K.K. has affirmed SMBC Nikko Securities Inc.'s
A1 and P-1 issuer ratings. The rating outlook remains stable.
The following ratings were affirmed:
- Long-term issuer rating (Domestic): A1
- Short-term issuer rating (Domestic): P-1
- Backed senior unsecured MTN (Domestic): (P)A1
- Backed other short term (Domestic): (P)P-1
On 5 March 2022, SMBC Nikko confirmed that some senior employees
were arrested by the Tokyo Distinct Public Prosecutors Office on alleged
charges of market manipulation and violating the Financial Instruments
and Exchange Act. These charges, if sustained, would
highlight control and governance issue at SMBC Nikko, a credit negative,
because of the potential damage to its reputation, and consequently,
its business. Regulatory penalties are also a potential risk.
However, Moody's base case assumption is that any financial
impact will not be material enough to result in a change to SMBC Nikko's
ratings.
RATINGS RATIONALE
The affirmation of SMBC Nikko's rating reflects the company's (1) adequate
liquidity and funding; (2) weak, but relatively stable profitability,
with its main focus on domestic businesses; (3) low risk appetite
but high leverage; and (4) very high probability of affiliate and
government support.
SMBC Nikko carries the same rating as the ratings of its parent,
Sumitomo Mitsui Financial Group, Inc. (SMFG, A1 stable)
as a result of the support assumptions, reflecting Moody's view
that SMFG and its major subsidiaries, including Sumitomo Mitsui
Banking Corporation (SMBC, deposits A1/senior unsecured A1 stable,
Baseline Credit Assessment a3) and SMBC Nikko, will benefit from
the same very high probability of government support.
SMBC Nikko's standalone assessment post-affiliate support of A3
is three notches higher than its standalone assessment of Baa3 owing to
Moody's assessment of a very high probability of support from SMBC
in both normal and stress situations, given that SMBC Nikko is a
key operating entity and closely integrated with SMBC's operations.
Governance is highly relevant for SMBC Nikko, as it is to all participants
in the securities industry. Moody's has considered the potential
governance risks associated with SMBC Nikko's control and governance
issue, highlighted by the arrests of its employees on alleged charges
of market manipulation. SMBC Nikko has established an investigation
committee on 4 March 2022 to establish the fact of the incident and identify
required responses, and will take all necessary steps to restore
the trust of customers and other concerned parties. Moody's
base case assumption is that the incident will not lead to a material
deterioration in the company's credit quality, depending on
how effective the company's steps and plans will be.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
An upgrade of SMBC Nikko's A1 rating is unlikely, given that the
rating is at the same level as the Government of Japan's sovereign rating
of A1 with a stable outlook. Moody's may raise its standalone
assessment of SMBC Nikko if the company's profitability strengthens,
liquidity improves, and leverage declines.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Factors that could result in a downgrade include, but are not limited
to:
» a decline in SMBC Nikko's strategic importance to SMFG and SMBC
» SMFG's ratings are downgraded
» a downgrade of Japan's sovereign rating
Moody's may lower its rating if the incident further damages SMBC
Nikko's reputation and leads to significant loss of business.
The principal methodology used in these ratings was Securities Industry
Market Makers Methodology (Japanese) published in November 2019 and available
at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187336.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
SMBC Nikko Securities Inc., headquartered in Tokyo,
is one of the leading securities companies in Japan. The company
is a wholly owned subsidiary of SMFG. SMBC Nikko's consolidated
assets totaled JPY13.3 trillion as of the end of December 2021.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
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affected the rating. For further information please see the ratings
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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Regulatory disclosures contained in this press release apply to the credit
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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The Global Scale Credit Rating on this Credit Rating Announcement was
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for additional regulatory disclosures for each credit rating.
Tetsuya Yamamoto
VP - Senior Credit Officer
Financial Institutions Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Japan K.K.
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