Nomura shares fell around 16% Monday after the firm said it is exposed to a huge loss from transactions with an undisclosed U.S. client against which Nomura has claims of about US$2 billion based on market prices as of March 26. Given that this is a net rather than a gross exposure, we believe it almost certainly means Nomura will recognize a bottom-line loss in its fiscal fourth quarter ending March 31. However, considering the strong earnings Nomura reported for April-December 2020, we expect it will have remained profitable for the full fiscal year even if the losses prove to be larger than estimated at present. A loss as large as $2 billion would be 7.7% of book value as of December 2020 and around 10% of Nomura’s market cap.
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