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Nomura (NMR) Ups Profit Target Despite Incurring Archegos Loss

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Despite taking an estimated hit of nearly $3 billion from the collapse of Archegos Capital Management, Nomura Holdings, Inc. (NMR - Free Report) has provided an upbeat outlook for the next fiscal year. The company has raised its pretax income target for the next fiscal year by 14.3%.

Supported by strength in its wholesale division, which comprises global markets and investment banking, it now estimates pretax income for its three core divisions of 320 billion yen, up from the previous target of 280 billion yen.

In the year ended Mar 31, 2021, the company’s pretax income was 247.6 billion yen.

In a presentation yesterday, Nomura said that the revised guidance was based on a strategy of developing its footprint in global private markets, taking in business with unlisted companies like private equity funds as well as services for wealthier private clients.

The upward revision is driven by an increased projection for the wholesale division. The wholesale division is expected to record a profit of 150 billion yen in the fiscal year ended March 2023, significantly up from 64.3 billion yen recorded in the year just ended.

The increased targets come after the collapse of Archegos Capital Management (which triggered one of the biggest trading losses in the history of Wall Street) raised concerns about Nomura’s global expansion strategy.

Notably, Archegos, the New York family office run by fund manager Bill Hwang, took huge bets on a few stocks, using money borrowed from several banks. However, after some of its biggest positions reversed, it was not able to meet the margin calls, resulting in a collapse.

Banks like Credit Suisse Group AG (CS - Free Report) , Nomura, Morgan Stanley (MS - Free Report) , UBS Group AG (UBS - Free Report) , Mitsubishi UFJ Financial Group and Mizuho Bank were the prime brokers that offered almost $50 billion worth of leverage to Archegos but collectively lost more than $10 billion due to the fallout.

Yesterday, Nomura’s chief executive officer, Kentaro Okuda, stated that the company has already exited more than 99% of its Archegos-related positions. He also said that the firm does not intend to move away from its prime brokerage business. However, it will reduce prime brokerage transactions that only provide credit, using stocks as collateral.

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