Reuters: Money: Moody's cuts Nomura rating, but stable outlook a relief

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Moody's cuts Nomura rating, but stable outlook a relief Mar 16th 2012, 14:24 A man passes a branch of Nomura Securities in Tokyo November 1, 2011. Credit: Reuters/Yuriko Nakao TOKYO | Fri Mar 16, 2012 10:24am EDT TOKYO (Reuters) - Moody's Investors Service cut its debt rating on Nomura Holdings by one notch to just one level above speculative or "junk" grade, but set the outlook at stable, giving Japan's top investment bank some breathing room to carry out reforms. Moody's had flagged the likely one-notch downgrade to Baa3 last month when it warned it may cut the credit ratings of 17 global financial institutions to reflect the euro zone debt crisis and generally tough conditions facing investment banks. By setting Nomura's rating outlook at stable, Moody's has indicated that in principle it won't change the rating for 12 to 18 months. A negative outlook would have put a downgrade to "junk" in sight, potentially making some counterparties wary of doing business with the bank, analysts have said. "With the outlook at stable there is now a certain level of comfort about the rating situation," said Deutsche Securities analyst Masao Muraki, noting that Standard & Poor's has also set its outlook at stable. "The risk of a credit downgrade over the near to mid-term has receded." The downgrade comes despite Nomura's return to profit in the October-December quarter, when it benefitted from a recovery in its overseas fixed-income business and started and savings from a $1.2 billion cost-cutting plan launched last year. Nomura has been forced to restructure its business after a global expansion that began with the purchase of the Asian and European businesses of failed Wall Street bank Lehman Brothers in 2008 was derailed by the European debt crisis. Moody's said Nomura had made progress, predicting the cost-cuts would boost future performance. It also noted the strength of its retail network in Japan and factored in a "moderate probability" of government support were Nomura to ever fall into financial trouble and need an injection of funds. But the ratings agency said the Baa3 rating, which puts Nomura on par with struggling domestic rival Daiwa Securities Group, reflected its worries over the long-term profitability of its overseas capital markets businesses. "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 global peers," Moody's said in a statement. Nomura's stock was unmoved by the downgrade, closing the morning session in Tokyo unchanged at 400 yen. It has nearly doubled since tumbling as low as 223 on November 24, two weeks after Moody's put Nomura on review for possible downgrade, triggering worries in the market about a potential two-notch cut. Moody's extended the review of Nomura in mid-February when it launched a broader review of global banks. Nomura has repeatedly played down the potential negative impact of a ratings downgrade, noting that it has already secured funds to meet refinancing needs going out four quarters and the cushion provided by a $72 billion liquidity pool. Chief Operating Officer Takumi Shibata told analysts in February that Nomura would need to put up just 10 to 20 billion yen in additional collateral for existing derivatives contracts in the case of a one-notch cut. He said a downgrade would have virtually no impact on its business. "Nomura maintains a solid platform across its Retail, Asset Management, and Wholesale businesses. Our robust capital base and abundant liquidity position us well to respond to the ongoing challenges facing the investment banking industry," Nomura said in a statement on Friday in response to Moody's decision. ($1 = 83.2900 Japanese yen) (Reporting by Nathan Layne, Yoko Kubota and Emi Emoto; Editing by Richard Pullin) Link this Share this Digg this Email Reprints

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