Nomura (NMR) - 2024 Q4 - Annual Report

Key Information This section outlines the primary risk factors that could impact the company's business, financial condition, and operations Risk Factors The company faces diverse risks across business, financial, legal, and operational areas, impacting its performance and shareholder value - Business risks stem from market fluctuations, intense competition from both traditional financial firms and new non-financial entrants, and event risks like geopolitical tensions; Sustainability factors, including climate change, are also noted as a potential adverse factor[15][18][37] - Operational risks include potential losses from trading and investment activities, holding large concentrated positions, and ineffective hedging strategies; The report specifically references the significant losses from the U.S. Prime Brokerage Event in 2021 as an example of these risks materializing[39][48][49] - Financial position risks include the potential for impairment losses on goodwill and other assets, liquidity risk stemming from an inability to access funding or a credit rating downgrade, and impairment on equity-method investments[19][973][986] - Legal, compliance, and other operational risks are substantial, covering potential misconduct or fraud by employees, failure to manage conflicts of interest, and extensive legal and regulatory actions; The company also notes the identification and subsequent remediation of a material weakness in its internal control over financial reporting[19][992][993] - Risks for shareholders and ADS holders include daily price limitations on Japanese stock exchanges, restrictions under Japan's unit share system, and more limited rights for ADS holders compared to direct shareholders[20][288][311] Company Information This section provides an overview of Nomura's history, business operations, organizational structure, and property holdings History and Development Nomura, incorporated in Japan in 1925, evolved into a global financial holding company, notably expanding with the 2008 Lehman Brothers acquisition - The Company was incorporated in Japan on December 25, 1925, specializing in debt securities trading[316] - In 2001, the company adopted a holding company structure, changing its name to Nomura Holdings, Inc. and listing on the NYSE[295][318] - A significant expansion occurred in 2008 with the acquisition of Lehman Brothers' operations in Asia Pacific, Europe, and the Middle East[318] Business Overview Nomura operates globally through Wealth Management, Investment Management, and Wholesale divisions, focusing on strategic growth, private markets, and client solutions under extensive regulation - Nomura's business is structured into three main divisions: Wealth Management, Investment Management, and Wholesale; The Retail Division was renamed Wealth Management effective April 1, 2024[298][321] - The Wealth Management division provides asset consultation services to individuals and corporations in Japan through a nationwide branch network and online services[329][355] - The Investment Management division offers a wide range of investment strategies and products, including traditional assets and alternatives like private equity, to a global client base of institutional and individual investors[330][356] - The Wholesale division consists of two businesses: Global Markets (sales, trading, and structuring of fixed income and equity products) and Investment Banking (underwriting, M&A advisory, and other financial advisory services)[331][332][360] - The company is subject to extensive regulation globally, including capital requirements under Basel III and Total Loss-Absorbing Capacity (TLAC) rules in Japan, where it is designated a Domestic Systemically Important Bank (D-SIB)[74][283][345] Organizational Structure Nomura Holdings, Inc. serves as the parent company for a global group, with key subsidiaries in Japan, the U.S., and the U.K Significant Subsidiaries and Ownership | Subsidiary Name | Country/Region | Ownership Interest (%) | | :--- | :--- | :--- | | Nomura Securities Co., Ltd. | Japan | 100% | | Nomura Asset Management Co., Ltd. | Japan | 100% | | Nomura Holding America Inc. | U.S. | 100% | | Nomura Securities International, Inc. | U.S. | 100% | | Nomura Europe Holdings plc | U.K. | 100% | | Nomura International plc | U.K. | 100% | | Nomura International (Hong Kong) Limited | Hong Kong | 100% | Property, Plants and Equipment Nomura's property includes its Tokyo head office and major leased overseas offices, with significant owned assets and a large redevelopment project underway in Tokyo - As of March 31, 2024, the aggregate book value of owned land and buildings was ¥98 billion, and equipment was ¥38 billion[582] - Major offices are located in Tokyo, London, New York, and Hong Kong; Most overseas office space is leased[530][556] - The company is undertaking a major redevelopment project in Tokyo's Nihonbashi district, with an estimated total expenditure of ¥149.2 billion, expected to be completed by March 2026[558] Operating and Financial Review and Prospects This section reviews Nomura's financial performance, liquidity, capital management, and critical accounting policies for the fiscal year Operating Results Nomura reported significant financial improvement for FY2024, with net revenue up 17.0% and net income up 78.8%, driven by strong performance across all business segments Consolidated Financial Highlights (Fiscal Year Ended March 31) | Metric | 2024 (¥B) | 2023 (¥B) | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | 1,562.0 | 1,335.6 | 17.0% | | Income before income taxes | 273.9 | 149.5 | 83.2% | | Net income attributable to NHI | 165.9 | 92.8 | 78.8% | | Diluted EPS (¥) | 52.69 | 29.74 | 77.2% | Segment Income Before Income Taxes (Fiscal Year Ended March 31) | Division | 2024 (¥B) | 2023 (¥B) | % Change | | :--- | :--- | :--- | :--- | | Retail | 122.7 | 33.5 | 266.2% | | Investment Management | 60.2 | 43.5 | 38.4% | | Wholesale | 53.9 | 29.4 | 83.6% | - The Retail Division's net revenue grew 34.0% YoY to ¥402.4 billion, driven by a significant increase in flow revenue from stocks and investment trusts amid an active market[566] - The Investment Management Division's net revenue increased 19.9% to ¥154.1 billion; Assets under management reached a record high of ¥89.0 trillion, a 32.2% increase from the prior year[567][627] - The Wholesale Division's net revenue rose 12.1% to ¥866.1 billion, with Global Markets benefiting from strong performance in spread and equity products, and Investment Banking seeing growth in Japan-related Equity Capital Market deals[562][568] Liquidity and Capital Resources Nomura maintains robust liquidity and capital, with a ¥8,418.0 billion liquidity portfolio and a 16.29% CET1 ratio, supported by diversified funding and a consistent shareholder return policy Liquidity and Capital Position (as of March 31, 2024) | Metric | Value | | :--- | :--- | | Liquidity Portfolio | ¥8,418.0 billion | | Total Long-Term Unsecured Debt | ¥10,254.9 billion | | Common Equity Tier 1 (CET1) Ratio | 16.29% | | Tier 1 Capital Ratio | 18.27% | | Consolidated Leverage Ratio | 5.24% | | Adjusted Leverage Ratio | 10.2x | - The total liquidity portfolio increased to ¥8,418.0 billion as of March 31, 2024, from ¥7,654.3 billion a year earlier, consisting primarily of cash, cash equivalents, and government debt securities[700] - Nomura's funding strategy emphasizes diversification by market, instrument, currency, and maturity; The average maturity for plain vanilla debt securities and borrowings with maturities over one year was 3.5 years[730][734] Dividends Per Share (Yen) | Fiscal Year | Dividend per Share (¥) | | :--- | :--- | | 2022 | 22.00 | | 2023 | 17.00 | | 2024 | 23.00 | - The company aims for a total payout ratio (dividends and share buybacks) of at least 50%[67] Critical Accounting Policies and Estimates Fair value measurement of financial instruments, especially Level 3 assets, is Nomura's most critical accounting policy, requiring significant judgment and impacting financial statements - The most significant accounting policy relates to the fair value of financial instruments, which requires complex and subjective judgments by management[800] - Valuation is particularly judgmental for Level 3 financial instruments, which use significant unobservable inputs; These are valued based on management's judgment about assumptions market participants would use[117] - Net Level 3 financial assets (assets net of derivative liabilities) increased from ¥868 billion as of March 2023 to ¥1,041 billion as of March 2024[88] Directors, Senior Management and Employees This section details the company's leadership, compensation practices, board structure, employee demographics, and share ownership Directors and Senior Management The company's leadership includes Koji Nagai as Chairman and Kentaro Okuda as Group CEO, with a board structure featuring a majority of outside directors on key committees - Key leadership includes Koji Nagai as Chairman of the Board and Kentaro Okuda as Director, Representative Executive Officer, President & Group CEO[89][119] - Takumi Kitamura serves as Executive Officer, Chief Financial Officer, and Chief Transformation Officer[94] - As of June 26, 2024, the board comprises twelve directors, eight of whom are Outside Directors, ensuring a majority of outside directors on key committees[806][919] Compensation Nomura's statutory officer compensation aligns with shareholder interests through fixed and performance-linked components, including a new PSU plan tied to ROE and TSR - Compensation for statutory officers is divided into fixed base salary and performance-linked compensation, which includes annual bonuses and long-term incentive plans (RSUs and PSUs)[168][865] - A new Performance Share Unit (PSU) plan was introduced in March 2024; Payouts (0% to 150% of base shares) are determined by Return on Equity (ROE) and Total Shareholder Return (TSR) over a three-year performance period[171][172][906] Aggregate Compensation for Statutory Officers (FY ended Mar 31, 2024) | Category | Number of People | Total Compensation (¥M) | | :--- | :--- | :--- | | Directors | 13 | 726 | | Executive Officers | 8 | 4,457 | | Total | 21 | 5,183 | - Compensation policies include clawback provisions in the event of material financial restatements or violations of laws or company policies[837][840] Board Practices Nomura employs a "Company with Three Board Committees" structure, ensuring independent oversight through majority outside director composition on Nomination, Audit, and Compensation committees - The company has a "Company with Three Board Committees" structure: Nomination, Audit, and Compensation[155] - The majority of members on each of the three statutory committees must be outside directors; As of June 2024, each committee had two outside directors out of three members[158][184][920] - A non-statutory Board Risk Committee, chaired by an outside director, was established to assist the Board in supervising the group's risk management[155][185] Employees As of March 31, 2024, Nomura Group had 26,850 employees globally, with a significant presence across Japan, Europe, the Americas, and Asia/Oceania Employee Headcount by Region (as of March 31) | Region | 2023 | 2024 | | :--- | :--- | :--- | | Japan | 15,131 | 14,870 | | Europe | 2,937 | 3,053 | | Americas | 2,387 | 2,440 | | Asia and Oceania | 6,320 | 6,487 | | Total | 26,775 | 26,850 | - As of March 31, 2024, 7,815 employees of Nomura Securities in Japan were members of the employees' union; The company reports excellent employee relations[188][237] Share Ownership As of May 31, 2024, no director or executive officer owned 1% or more of the company's issued and outstanding shares, with individual holdings detailed - As of May 31, 2024, no director or executive officer owned 1% or more of the company's issued and outstanding shares[162] Share Ownership of Directors (as of May 31, 2024) | Name | Number of Shareholdings | | :--- | :--- | | Koji Nagai | 512,942 | | Kentaro Okuda | 439,490 | | Yutaka Nakajima | 658,392 | | Total (All Directors) | 1,667,104 | Share Ownership of Executive Officers (as of May 31, 2024) | Name | Number of Shareholdings | | :--- | :--- | | Toshiyasu Iiyama | 188,929 | | Takumi Kitamura | 120,037 | | Yosuke Inaida | 192,308 | | Total (All Executive Officers) | 534,227 | Major Shareholders and Related Party Transactions This section identifies Nomura's major shareholders and details significant transactions with related parties Major Shareholders Nomura's major shareholders include BlackRock, Inc. and Sumitomo Mitsui Trust Holdings, Inc., with U.S. holders owning 15.2% of common stock as of March 31, 2024 - According to a Schedule 13G filing on February 6, 2024, BlackRock, Inc. owned 7.8% of the Company's common stock[223] - According to a Schedule 13G filing on February 5, 2024, Sumitomo Mitsui Trust Holdings, Inc. owned 5.4% of the Company's common stock[899] - As of March 31, 2024, U.S. shareholders of record held 15.2% of Nomura's issued common stock[927] Related Party Transactions Nomura conducts significant business with Nomura Research Institute, Ltd. (NRI), an affiliate in which it held a 23.0% stake as of March 31, 2024 - Nomura held a 23.0% ownership stake in Nomura Research Institute, Ltd. (NRI) as of March 31, 2024[238] - For the fiscal year ended March 31, 2024, Nomura purchased ¥15,367 million in software/equipment and paid ¥47,289 million for other services to NRI[941] Financial Information This section provides an overview of the company's consolidated financial statements, legal proceedings, and dividend policy Consolidated Statements and Other Financial Information This section covers legal proceedings, dividend policy, and confirms no significant financial changes since the March 31, 2024 fiscal year-end beyond reported disclosures - Details on litigation and related matters are provided in Note 19 to the consolidated financial statements[931] - The company's dividend policy is detailed in Item 5.B, "Liquidity and Capital Resources"[962] - No significant changes have occurred since the fiscal year-end of March 31, 2024, other than those disclosed in the annual report[196] The Offer and Listing This section outlines the company's stock listing details and the markets where its securities are traded Offer and Listing Details This section refers to other document parts for comprehensive details regarding the company's stock listings - The principal trading market for the Company's common stock is the Tokyo Stock Exchange[942] Markets Nomura's common stock is listed on the Tokyo and Nagoya Stock Exchanges, while its American Depositary Shares (ADSs) trade on the New York Stock Exchange - The Company's common stock is listed on the Tokyo Stock Exchange and Nagoya Stock Exchange (Symbol: 8604)[942] - American Depositary Shares (ADSs) are listed on the New York Stock Exchange (Symbol: NMR)[964] Additional Information This section provides details on the company's governing documents, foreign exchange controls, and tax implications for shareholders Memorandum and Articles of Association Nomura's Articles of Incorporation define its purpose in financial services, with no mandatory director retirement age or share requirements, and delegated management powers to Executive Officers - The company's purpose is to control and manage companies in the financial instruments, banking, and trust businesses[934] - There is no mandatory retirement age for directors or a share ownership requirement to qualify as a director[229][935] - The Board of Directors has delegated borrowing powers and other management responsibilities to the Executive Officers[199] Exchange Controls Japanese Foreign Exchange Regulations govern foreign investment in Nomura shares, generally allowing repatriation of dividends and sales proceeds, but requiring reporting for 1% or more acquisitions - Dividends and sales proceeds from shares held by non-residents of Japan can generally be converted into any foreign currency and repatriated abroad[232] - Foreign investors acquiring 1% or more of the company's shares are generally required to report the acquisition to the Ministry of Finance[969] Taxation This section summarizes U.S. federal income tax and Japanese tax consequences for shareholders, including qualified dividend income for U.S. holders and Japanese withholding tax for non-residents - For U.S. holders, dividends paid by Nomura are generally expected to be qualified dividend income, taxable at preferential rates, provided holding period requirements are met[270] - The company does not expect to be treated as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but this is a factual determination made annually[277] - For non-resident shareholders, dividends are generally subject to a 15% Japanese withholding tax, which may be reduced to 10% for U.S. portfolio investors under the Japan-U.S. Tax Treaty[250][252] Risk Management This section details Nomura's comprehensive framework for managing market, credit, operational, and model risks, including quantitative and qualitative disclosures Risk Management Framework Nomura employs a comprehensive "Three Lines of Defense" risk management framework, overseen by the Board and its committees, guided by an annually reviewed Risk Appetite Statement - Nomura's risk management is structured around the "Three Lines of Defense" model: 1) Front office, 2) Risk management departments, and 3) Internal Audit[1398][1399] - The Board of Directors has overall responsibility for risk management, assisted by the Board Risk Committee (BRC) for specialized oversight and the Executive Management Board (EMB) for execution[1402][1403] - The company's Risk Appetite Statement, approved by the EMB, defines the types and levels of risk Nomura will assume and covers capital adequacy, liquidity, financial risk, and non-financial risk[1400][1401] Market Risk Management Nomura manages market risk using VaR, SVaR, and stress testing, with the one-day 95% VaR ranging from ¥4.3 billion to ¥6.8 billion in FY2024, and no 99% VaR breaches - Market risk is assessed using tools like Value at Risk (VaR), Stressed VaR (SVaR), sensitivity analysis, and stress testing[1068] Value at Risk (VaR) - One-Day, 95% Confidence Interval | Metric | As of Mar 31, 2024 (¥B) | FY2024 Range (¥B) | | :--- | :--- | :--- | | Equity | 3.3 | - | | Interest Rate | 2.6 | - | | Foreign Exchange | 2.1 | - | | Total VaR (net of diversification) | 5.5 | 4.3 - 6.8 | - The VaR model is validated by comparing actual one-day trading losses with VaR estimates; For the 12 months ended March 31, 2024, no trading losses exceeded the 99% VaR estimate at the group level[1029] - Non-trading risk, primarily from equity investments held for operating purposes, is also monitored; A 10% change in the TOPIX index was estimated to change the fair value of these investments by ¥8.3 billion as of March 31, 2024[1077] Credit Risk Management Nomura manages global credit risk through counterparty evaluation, internal ratings, limits, and mitigants, with over 95% of exposure to investment-grade countries as of March 31, 2024 - The credit risk management process involves evaluating counterparty creditworthiness, assigning internal ratings, setting credit limits, and using risk mitigants like netting and collateral[1087][1088] - For regulatory capital purposes, Nomura applies the Foundation Internal Rating Based Approach for calculating credit risk-weighted assets[1094] Top 10 Country (Region) Exposures (as of March 31, 2024) | Country (Region) | Exposure (¥B) | | :--- | :--- | | United States | 7,477 | | Japan | 2,635 | | United Kingdom | 1,105 | | Singapore | 301 | | Canada | 257 | Operational Risk Management Nomura manages operational risk through a comprehensive framework including event reporting, RCSA, KRI, and scenario analysis, using the Standardized Approach for regulatory capital - The operational risk management framework includes event reporting, Risk and Control Self-Assessment (RCSA), Key Risk Indicators (KRI), and scenario analysis[1149][1150] - Nomura calculates regulatory capital for operational risk using the Standardized Approach, which applies a specific "Beta Factor" to the gross income of each business line[1152] Model Risk Management Nomura manages model risk through a dedicated framework governing the entire model lifecycle, requiring independent validation for new models and material changes - A Model Risk Management Framework governs the development, validation, approval, and usage of all models[1156] - New models and material changes must be independently validated prior to official use to assess suitability, identify limitations, and quantify associated model risk[1157] Controls and Procedures This section details the effectiveness of Nomura's disclosure controls and internal control over financial reporting, including remediation of prior weaknesses Disclosure Controls and Procedures As of March 31, 2024, the Group CEO and CFO concluded that the company's disclosure controls and procedures were effective - The Group CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024[1219] Management's Annual Report on Internal Control Over Financial Reporting Management concluded internal control over financial reporting was effective as of March 31, 2024, a conclusion affirmed by an unqualified auditor's report - Management concluded that internal control over financial reporting was effective as of March 31, 2024, based on the COSO framework[1220] - The independent auditor, Ernst & Young ShinNihon LLC, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[1221] Changes in Internal Control Over Financial Reporting A previously identified material weakness in internal control related to cash flow statement classification was remediated as of March 31, 2024, through enhanced procedures and training - A previously identified material weakness related to the consolidated statement of cash flows was remediated during the fiscal year ended March 31, 2024[1223][1225] - Remediation efforts included enhanced review procedures, new internal policies and training, and the implementation of a new annual comprehensive review control for the statement of cash flows[1223][1224] Corporate Governance and Other Matters This section covers Nomura's corporate governance practices, including audit committee expertise, code of ethics, accountant fees, share repurchases, and cybersecurity measures Audit Committee Financial Expert Mr. Masahiro Ishizuka, an Audit Committee member, is designated as an independent "audit committee financial expert" by the Board of Directors - Mr. Masahiro Ishizuka is designated as the Audit Committee's financial expert[1226] Code of Ethics Nomura's code of ethics, comprising the Group Code of Conduct and Code of Ethics for Financial Professionals, was revised in April 2024 to align with its new Group Purpose - The company maintains a code of ethics, which was revised in April 2024 to align with the new Group Purpose[1227] Principal Accountant Fees and Services Ernst & Young ShinNihon LLC, Nomura's principal accountant, billed ¥4,888 million in FY2024, primarily for audit services, all pre-approved by the Audit Committee Accountant Fees (Millions of Yen) | Fee Category | FY 2023 | FY 2024 | | :--- | :--- | :--- | | Audit Fees | 4,138 | 4,282 | | Audit-Related Fees | 224 | 261 | | Tax Fees | 330 | 294 | | All Other Fees | 264 | 51 | | Total | 4,956 | 4,888 | Purchases of Equity Securities by the Issuer and Affiliated Purchasers Nomura repurchased 80.6 million shares in FY2024, including 80.59 million under publicly announced buyback programs authorized in April 2023 and January 2024 - In FY2024, the company purchased a total of 80.6 million shares, with 80.59 million acquired through publicly announced buyback programs[1236][1239] - A buyback program for up to 35 million shares (or ¥20 billion) was authorized in April 2023[1239] - A new buyback program for up to 125 million shares (or ¥100 billion) was authorized in January 2024, running until September 2024[1241] Corporate Governance As a foreign private issuer, Nomura adheres to Japanese corporate governance practices, which differ from NYSE standards, particularly regarding board independence and equity compensation approvals - The company follows Japanese corporate governance practices, which differ from NYSE standards for U.S. companies[1243] - Unlike NYSE rules for U.S. companies, the full Board of Directors is not required to have a majority of independent directors, but the Audit, Nomination, and Compensation committees must[1286] Cybersecurity Nomura's comprehensive cybersecurity strategy, managed by its CIO, CISO, and CDO, is integrated into its risk framework, with no material incidents reported for FY2024 - Cybersecurity is managed by the Group CIO, CISO, and CDO, with oversight from the Board and its committees (EMB, GRMC)[1293][1295] - The cybersecurity program includes regular internal and external assessments, penetration testing, and a Third-Party Security Risk Management program[1290][1291] - During the fiscal year ended March 31, 2024, no identified cybersecurity threats or incidents materially affected or were reasonably likely to materially affect the company's business strategy, results of operations, or financial condition[1292] Financial Statements This section presents Nomura's audited consolidated financial statements, the independent auditor's report, and detailed notes on accounting policies and financial items Report of Independent Registered Public Accounting Firm Ernst & Young ShinNihon LLC issued unqualified opinions on Nomura's FY2024 consolidated financial statements and internal controls, highlighting Level 3 financial instrument valuation as a critical audit matter - The auditor issued an unqualified opinion on the consolidated financial statements, confirming they are presented fairly in accordance with U.S. GAAP[1307] - The auditor also issued an unqualified opinion on the effectiveness of internal control over financial reporting as of March 31, 2024[1308][1359] - The fair value of less liquid (Level 3) financial instruments was identified as a critical audit matter due to the complex and subjective judgments required for their valuation[1313] Consolidated Financial Statements The consolidated financial statements present Nomura's financial position and performance, with total assets at ¥55.1 trillion and shareholders' equity at ¥3.4 trillion as of March 31, 2024 Consolidated Balance Sheet Highlights (as of March 31) | Item | 2024 (¥T) | 2023 (¥T) | | :--- | :--- | :--- | | Total Assets | 55.1 | 47.8 | | Total Liabilities | 51.7 | 44.5 | | Total NHI Shareholders' Equity | 3.4 | 3.1 | Consolidated Statement of Income Highlights (Year Ended March 31) | Item | 2024 (¥B) | 2023 (¥B) | 2022 (¥B) | | :--- | :--- | :--- | :--- | | Net Revenue | 1,562.0 | 1,335.6 | 1,363.9 | | Income before income taxes | 273.9 | 149.5 | 226.6 | | Net income attributable to NHI | 165.9 | 92.8 | 143.0 | Notes to the Consolidated Financial Statements The notes provide detailed disclosures on accounting policies and financial statement items, including fair value measurements, derivatives, securitizations, borrowings, and regulatory requirements - Fair Value (Note 2): Financial instruments are categorized into a three-level hierarchy; Level 3 assets, valued with significant unobservable inputs, totaled ¥1,296 billion as of March 31, 2024[1313][1805][1807] - Derivatives (Note 3): Nomura uses a wide variety of derivatives for trading and hedging; The total notional value of derivatives used for trading and non-trading purposes was ¥4,353 trillion as of March 31, 2024[1114][1132] - Securitizations and VIEs (Note 6): Nomura consolidates VIEs where it is the primary beneficiary; As of March 31, 2024, consolidated VIE assets were ¥1,468 billion; Maximum exposure to loss from unconsolidated VIEs was ¥5,033 billion[1433][1481] - Borrowings (Note 10): As of March 31, 2024, total long-term borrowings were ¥12,452 billion[1703] - Share Repurchases (Note 16): On January 31, 2024, the board approved a share buyback program for up to 125 million shares or ¥100 billion, which was completed by June 6, 2024[1926]