Nomura Securities, Japan's largest securities company, is to take an extraordinary loss of ¥371bn ($3.35bn) this financial year, reflecting the write-off of bad debts at Nomura Finance, its troubled non-bank subsidiary.
Nomura said the write-off would result in a net loss in the first half, but declined to quantify it. The securities company, which has net assets of ¥1,600bn, expects to be able to cover part of the loss by selling some of its securities holdings. The move, which was expected in the industry, highlights the huge cost to Japanese financial institutions of the years of inflated Japanese asset prices and the subsequent deflation, particularly of real estate prices, over the past several years.
Nomura Finance, which is 91 per cent owned by the Nomura group of companies, was heavily involved in the kind of dubious real estate lending popular in the late 1980s and early 1990s, when Japanese asset prices became highly inflated.
It has non-performing loans of ¥415bn, representing unrecoverable loans and those in arrears for more than six months, but Nomura Securities believes the ¥371bn it is injecting into the company is sufficient to put the problem behind it.
Nomura Finance lent extensively to real estate companies, which were also recipients of loans from the now-bankrupt housing loan companies at the centre of Japan's jusen scandal, and are having to be bailed out with ¥685bn in taxpayers' money.
Nomura Finance is believed to have been the largest creditor to Asahi Juken, a real estate company based in Osaka which had the third largest volume of loans from the jusen companies. Nomura Finance lent it some ¥34.1bn. Analysts welcomed Nomura's move as a sign that it was now sufficiently confident of its financial position to resolve the problem immediately rather than over an extended period of 10 years as initially planned.
Nomura had unrealised gains on its securities holdings of ¥432bn at the end of March.
