Nomura tightens hedge fund financing after Archegos collapse

[HONG KONG] Nomura Holdings is beginning to tighten financing for some hedge fund clients following the Archegos Capital Management fiasco that may cost Japan's biggest brokerage an estimated US$2 billion, according to people familiar with the matter.

The restrictions are part of a wider review of Nomura's prime brokerage that may lead to a scaling back of the business, one of the people said, declining to be identified as the details are private and no decision has been reached.

Nomura is tightening leverage for some clients previously granted exceptions to margin financing limits, another person said.

A representative for the Tokyo-based firm declined to comment.

Nomura is taking steps to reduce risk at its prime brokerage unit in the wake of the Archegos collapse that may result in combined losses of US$10 billion for global banks, according to estimates from JPMorgan Chase & Co.

The Japanese brokerage joins a swathe of high-profile lenders caught up in the failure including Credit Suisse Group, which disclosed a first-quarter charge of 4.4 billion Swiss francs (S$6.40 billion) for its ties to the New York-based firm.

Credit Suisse has also been tightening financing terms for hedge funds and family offices, in a potential revamp of new industry practices after the blowup, people with direct knowledge of the matter said last week. The Swiss bank is also planning a sweeping overhaul of the hedge fund business at the centre of the incident.


Nomura is examining the cause of the possible losses and it's too early to say how it might impact earnings, an executive at the firm said in March, asking not to be identified.

They declined to say how much the company has unwound positions linked to Archegos, which made highly leveraged bets on stocks that imploded when the investments suddenly lost value last month.

Shares in Nomura lost 2.6 per cent as of 11.25am in Tokyo on Wednesday.

Under Kentaro Okuda, who became chief executive officer last April, Nomura's net income reached a 19-year high for the nine months ended in December, driven by a boom in trading and investment banking at home and overseas.

The brokerage said in late March that it had an estimated US$2 billion claim against a US client, which Bloomberg identified as Archegos. The announcement sent the stock plunging 16 per cent on March 29.

Although Nomura is yet to confirm exactly how much it will lose from Archegos, SMBC Nikko Securities analysts led by Masao Muraki have said that it may post a 95 billion yen (S$1.17 billion) loss in the fourth quarter as a result of the trades.

The brokerage isn't the only Japanese financial institution taking a hit from Archegos. Mitsubishi UFJ Financial Group's securities unit is booking a US$270 million loss from the debacle, while Mizuho Financial Group faces about 10 billion yen in potential losses, Bloomberg has reported.

Prime-brokerage divisions cater specifically to hedge funds, lending them cash and securities and conducting their trades. The relationships can be very lucrative for investment banks as well as a significant source of revenue.



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