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Rating Action:

Moody's downgrades Nomura Holdings to Baa3 from Baa2; outlook stable

 The document has been translated in other languages

Global Credit Research - 15 Mar 2012

London, 15 March 2012 -- Moody's Investors Service has today downgraded the long-term debt ratings of Nomura Holdings to Baa3 from Baa2 and the long-term debt ratings of Nomura Securities to Baa2 from Baa1. The P-2 short-term debt rating of Nomura Securities was affirmed and the outlook on all the ratings is stable.

These rating actions conclude the review Moody's initiated on 9 November 2011 and extended on 15 February 2012 when Moody's announced a broader review of 17 banks and securities firms with global capital markets operations. Whilst Moody's recognises the progress being made in Nomura's recent restructuring efforts and its well-established retail and wholesale franchise in Japan, the actions incorporate Moody's view of the longer-term challenges facing Nomura's institutional wholesale activities and a reassessment of the risks inherent in the business model of global investment banks.

The rating also incorporates Moody's expectation of a moderate probability of systemic support for Nomura.

RATINGS RATIONALE

The rating actions reflect Moody's view of Nomura's international wholesale activities, which have led to a high level of earnings volatility due to the relatively weak strategic positioning of Nomura's business, combined with the difficult operating environment. In 2011, Nomura announced a USD1.2 billion cost-cutting programme, which has made significant progress and which Moody's expects will boost Nomura's future earnings performance, and in addition Nomura has seen some recovery in profits in the quarter ending December 2011 compared to the loss reported in the quarter ending September 2011. Nevertheless, Moody's considers that there remains uncertainty about the long-term positioning and profitability of Nomura's international capital market activities, given its weaker market share compared with those of its global peers.

"Management at Nomura is attempting to bring greater focus to its international investment banking activities - a strategy it has pursued in various forms over a number of years -- but given the competitive position of Nomura's international capital markets platform we think the Baa3 rating better reflects these risks," said Elisabeth Rudman, a Moody's Senior Vice President.

Moreover, as elaborated in the special comment "Challenges for Firms with Global Capital Markets Operations: Moody's Rating Reviews and Rationale," we consider the complexity, opacity and tail risk in the investment-banking business model warrants a lower rating for these firms. We recognise that Nomura - similar to several of the other firms under review - has strengthened its capital, improved liquidity and decreased its trading inventory levels. However, these factors only partly mitigate the tail risks inherent in its business model.

Moody's considers Nomura's very strong market position in Japanese retail brokerage and asset management to be a credit positive, whilst noting that the profitability of these businesses also remains subject to market volatility.

Moody's views as beneficial for creditors the Bank of Japan's ability to provide support by acting as lender of last resort, including the possibility of granting special uncollateralised loans to both Nomura Holdings and Nomura Securities under Article 38 (as well as liquidity support for registered securities companies, such as Nomura Securities, under Articles 33 and 37). Given the highly supportive stance of the Bank of Japan and the systemic role of Nomura within both the domestic and global financial system, Moody's has incorporated a moderate probability of systemic support into the firm's ratings. The ratings of Nomura Holdings are positioned one notch lower than Nomura Securities, due to the structural subordination of the holding company.

WHAT COULD CHANGE THE RATING UP

An upgrade in the near term is unlikely given today's rating action. However, a limited amount of upward rating pressure could develop if Nomura establishes a stable earnings profile for its international wholesale activities, supported by strong risk management.

WHAT COULD CHANGE THE RATING DOWN

Large, unexpected losses indicating risks outside of its current risk appetite could exert downward rating pressure.

The principal methodology used in these ratings was Global Securities Industry Methodology published in December 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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 to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings of rated entity Nomura Securities Co., Ltd. were initiated by Moody's and were not requested by this rated entity.

Rated entity Nomura Securities Co., Ltd. or its agent(s) participated in the rating process. This rated entity or its agent(s)provided Moody's access to the books, records and other relevant internal documents of the rated entity.

The ratings have been disclosed to the rated entities or their designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Elisabeth Rudman
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Nomura Holdings to Baa3 from Baa2; outlook stable
No Related Data.

 

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