Nomura (NMR) - 2022 Q4 - Annual Report

PART I Key Information This section outlines Nomura's key risks, encompassing business environment, specific operations, financial position, legal compliance, and shareholding Risk Factors - The company identifies significant risks stemming from the external business environment, including the material impact of financial market fluctuations, intense competition from traditional and non-financial firms, and geopolitical events[21][22][30] - Business-specific risks include potential losses from trading and investment activities, highlighted by the U.S. Prime Brokerage Event in March 2021, ineffective hedging strategies, and the potential for declines in brokerage, asset management, and investment banking revenues[25][52][56] - Risks related to the company's financial position involve potential impairment of goodwill, liquidity risk affecting the ability to fund operations, and the impact of credit rating downgrades on funding costs[28][80][85] - The company is subject to substantial legal, regulatory, and reputational risks, including extensive regulation that limits activities, potential for significant penalties, and risks from misconduct or fraud by employees or third parties[27][87][93] - Risks for shareholders include Japanese stock exchange price limitations, restrictions under the unit share system for holdings of less than 100 shares, and fewer rights for ADS holders compared to direct shareholders[32][111][112] Information on the Company This section details Nomura's history, corporate structure, and business operations, outlining its three main divisions, corporate goals, regulatory frameworks, and key management strategies History and Development of the Company - Nomura was incorporated on December 25, 1925, as a spin-off from The Osaka Nomura Bank, Ltd. It expanded internationally starting in 1927 and adopted a holding company structure on October 1, 2001, becoming Nomura Holdings, Inc[120][123] - In 2008, Nomura acquired and integrated the operations of Lehman Brothers in Asia Pacific, Europe, and the Middle East to facilitate future growth[124] Business Overview - Nomura's business is structured into three main divisions: Retail (serving individuals and corporations in Japan), Investment Management (providing asset management services globally), and Wholesale (comprising Global Markets and Investment Banking)[127][139][141] - The company's management vision is to achieve sustainable growth by helping resolve social issues, using Return on Equity (ROE) as a key management indicator[130][131][137] - Nomura is subject to extensive regulation in Japan (FIEA, TLAC requirements), the U.S. (SEC, CFTC), and Europe (BRRD, MiFID II), which impacts its operations and capital requirements[166][177][192] - Key management strategies include enhancing risk management following the 2021 U.S. Prime Brokerage Event, expanding into private markets, promoting digitalization to provide new services, and integrating sustainability into the core business strategy[253][256][259] Organizational Structure Significant Subsidiaries as of March 31, 2022 | 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 Europe Holdings plc | U.K. | 100 | | Nomura International (Hong Kong) Limited | Hong Kong | 100 | | Nomura Singapore Limited | Singapore | 100 | Property, Plants and Equipment - As of March 31, 2022, the aggregate book value of land and buildings owned by Nomura was ¥99 billion, and the book value of equipment was ¥32 billion[286] Planned Construction Project | Project | Location | Estimated Cost (¥ Billions) | Start Date | Completion Date | | :--- | :--- | :--- | :--- | :--- | | Nihonbashi 1-Chome Naka Area Redevelopment | Tokyo | 120 | Dec 2021 | Mar 2026 | Operating and Financial Review and Prospects This section analyzes Nomura's FY2022 financial performance, detailing operating results, segment performance, key indicators, liquidity, capital, and critical accounting policies Operating Results Fiscal Year 2022 Financial Highlights | Metric | FY Ended Mar 31, 2022 | % Change from FY21 | | :--- | :--- | :--- | | Net Revenue | ¥1,363.9 billion | -2.7% | | Income Before Income Taxes | ¥226.6 billion | -1.8% | | Net Income Attributable to NHI Shareholders | ¥143.0 billion | -6.6% | | Diluted EPS | ¥45.23 | - | | Return on Equity (ROE) | 5.1% | - | - The fiscal year was impacted by temporary factors, including a ¥65.4 billion loss from the U.S. client transaction (partially offset by a ¥14.7 billion recovery), approximately ¥62 billion in costs for legacy U.S. transactions, and a ¥79.0 billion gain from selling shares in Nomura Research Institute, Ltd[298] - By division, Retail net revenue decreased 11.1% to ¥328.0 billion due to client risk aversion. Investment Management net revenue fell 9.3% to ¥148.0 billion, mainly from lower investment income. Wholesale net revenue increased 1.7% to ¥703.1 billion, driven by a strong advisory business and recovery in Equities from the prior year's U.S. Prime Brokerage Event loss[302][304][308] Key Performance Indicators (FY 2022) | Division | KPI | Value | % Change from FY21 | | :--- | :--- | :--- | :--- | | Group | ROE | 5.1% | (from 5.7%) | | | CET1 Ratio | 17.22% | (from 15.81%) | | Retail | Recurring Revenue Assets | ¥19.6 trillion | +7.7% | | Inv. Mgmt. | Assets Under Management | ¥67.9 trillion | +4.9% | | Wholesale | Cost-to-Income Ratio | 89% | (from 91%) | | | Revenue/Modified RWA | 7.0% | +9.4% | Liquidity and Capital Resources - Nomura maintains a liquidity portfolio of cash and highly liquid, unencumbered securities to meet potential requirements. As of March 31, 2022, this portfolio totaled ¥7,074.2 billion[411] - The company diversifies its funding sources through short-term and long-term debt across various markets, currencies, and maturities. As of March 31, 2022, short-term unsecured debt was ¥2,932.1 billion and long-term unsecured debt was ¥7,898.1 billion[422][426][433] Consolidated Capital Ratios (as of March 31, 2022) | Ratio | Value | Required Level | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 17.22% | 7.51% | | Tier 1 Capital | 19.60% | 9.01% | | Total Capital Adequacy | 19.60% | 11.01% | | External TLAC (Risk-Weighted) | 30.72% | N/A | - Nomura's dividend policy aims for a consolidated payout ratio of 30% of semi-annual earnings. For the fiscal year ended March 31, 2022, the total annual dividend was ¥22 per share[469][472] Off-Balance Sheet Arrangements - Nomura engages in various off-balance sheet arrangements, primarily with Special Purpose Entities (SPEs) for structuring, underwriting, and distributing financial instruments. This involvement includes securitization and equity derivative activities[501][503] Contractual Obligations as of March 31, 2022 | Obligation Type | Total Contractual Amount (¥ Billions) | Less than 1 year (¥ Billions) | 1 to 5 years (¥ Billions) | More than 5 years (¥ Billions) | | :--- | :--- | :--- | :--- | :--- | | Standby letters of credit and other guarantees | 1698.193 | 1684.360 | 12.224 | 1.609 | | Long-term borrowings | 8988.356 | 456.663 | 4358.502 | 4173.191 | | Contractual interest payments | 1032.515 | 134.019 | 373.833 | 524.663 | | Operating lease commitments | 209.040 | 44.493 | 100.645 | 63.902 | | Commitments to extend credit | 2012.851 | 1354.834 | 433.343 | 224.674 | Critical Accounting Policies and Estimates - The most critical accounting policies involve significant management judgment, particularly in estimating the fair value of financial instruments and determining provisions for litigation[523][524] - For financial instruments without active market quotes (Level 3), fair value is determined using valuation techniques and models with unobservable inputs. Level 3 net assets increased from ¥566 billion in March 2021 to ¥792 billion in March 2022[526] - Litigation provisions are recognized when a loss is probable and can be reasonably estimated. As of June 24, 2022, the company estimated an aggregate reasonably possible maximum loss of approximately ¥61 billion in excess of amounts already provisioned for certain cases[527] Directors, Senior Management and Employees This section details Nomura's leadership and workforce, including director and executive compensation, board practices, employee statistics, and share ownership Directors and Senior Management - As of June 24, 2022, key leadership includes Koji Nagai (Chairman of the Board), Kentaro Okuda (President and Group CEO), and Tomoyuki Teraguchi (Deputy President). The board includes eight outside directors out of twelve total members[529][530][531] Compensation of Statutory Officers - Compensation for Directors and Executive Officers consists of base salary, an annual cash bonus, and long-term incentives (equity-linked awards). The annual bonus for the Group CEO is calculated based on the achievement of the ROE target, with qualitative factors also considered[562][589] Aggregate Compensation for FY Ended March 31, 2022 | Officer Category | Headcount | Base Salary etc. (¥ Billions) | Performance-linked Comp. (¥ Billions) | Non-monetary Comp. (¥ Billions) | Total (¥ Billions) | | :--- | :--- | :--- | :--- | :--- | :--- | | Directors | 13 | 0.323 | 0.070 | 0.063 | 0.456 | | Executive Officers | 7 | 0.430 | 0.301 | 0.258 | 0.989 | | Total | 20 | 0.753 | 0.371 | 0.321 | 1.445 | Individual Compensation for Group CEO (FY Ended March 31, 2022) | Name | Fixed Remuneration (¥ Billions) | Variable Compensation (¥ Billions) | Total (¥ Billions) | | :--- | :--- | :--- | :--- | | Kentaro Okuda | 0.119 | 0.233 | 0.352 | Board Practices - Nomura operates under a "Company with Three Board Committees" structure, separating management oversight from business execution. This includes a Nomination Committee, an Audit Committee, and a Compensation Committee, each with a majority of outside directors[612][613] - A non-statutory Board Risk Committee, chaired by an outside director, was established to assist the Board of Directors in supervising the group's risk management framework and strategies[620] Employees Number of Employees by Region | Region | As of Mar 31, 2021 | As of Mar 31, 2022 | | :--- | :--- | :--- | | Japan | 15,330 | 15,213 | | Europe | 2,769 | 2,820 | | Americas | 2,152 | 2,257 | | Asia and Oceania | 6,151 | 6,295 | | Total | 26,402 | 26,585 | Share Ownership - As of May 31, 2022, Chairman Koji Nagai held 393,142 shares and Group CEO Kentaro Okuda held 264,038 shares. No director or executive officer owned 1% or more of the company's issued shares[628][629] Major Shareholders and Related Party Transactions This section identifies Nomura's major shareholders and details significant related party transactions, primarily with Nomura Research Institute, Ltd - As of February 2022, BlackRock, Inc. was reported to own 6.40% and Sumitomo Mitsui Trust Holdings, Inc. was reported to own 5.40% of the Company's common stock[631][632] - Nomura holds a 24.5% stake in Nomura Research Institute, Ltd. (NRI) as of March 31, 2022. For the fiscal year ended March 31, 2022, Nomura paid NRI ¥45.103 billion for services and purchased ¥12.760 billion in software and equipment[635][636] - During the fiscal year ended March 31, 2022, Nomura sold a portion of its shares in NRI, recognizing a total gain of approximately ¥79.0 billion[637][630] Financial Information This section serves as a reference, directing readers to other report parts for consolidated financial statements, legal proceedings, and dividend policy details - The consolidated financial statements required by this item are included elsewhere in the annual report[641] - Information regarding legal proceedings can be found in Note 20 of the consolidated financial statements[642] - The company's dividend policy is described in Item 5.B "Liquidity and Capital Resources—Capital Management—Dividends"[643] The Offer and Listing This section specifies Nomura's trading markets, including its common stock on the Tokyo Stock Exchange and ADSs on the NYSE and Singapore Stock Exchange - The principal trading market for the Company's common stock is the Tokyo Stock Exchange (Symbol: 8604)[648] - The Company's American Depositary Shares (ADSs) are listed on the New York Stock Exchange (Symbol: NMR) and its common stock is listed on the Singapore Stock Exchange (Symbol: N33)[648] Additional Information This section provides supplementary corporate information, covering articles of association, exchange controls, and U.S. and Japanese tax implications for shareholders - The company's purpose, as stated in its Articles of Incorporation, is to control and manage domestic and foreign companies engaged in financial instruments business, banking, trust business, and other related financial services[654][662] - Under Japan's Foreign Exchange Regulations, a "foreign investor" who acquires 1% or more of the company's shares is generally required to report the acquisition to the Ministry of Finance[665] - For U.S. holders, dividends are generally treated as qualified dividend income taxable at preferential rates, subject to holding period requirements. The gross amount of the dividend, including any Japanese tax withheld, is taxable[676][677] - For non-resident shareholders in Japan, dividends are subject to a withholding tax, typically at a rate of 15.315% (including surtax until 2037). This rate may be reduced under applicable tax treaties, such as the Japan-U.S. Tax Treaty which generally reduces the rate to 10% for portfolio investors[691][692][694] Quantitative and Qualitative Disclosures about Market, Credit and Other Risk This section details Nomura's comprehensive risk management framework, covering market, credit, and operational risks, including governance and quantitative disclosures - Nomura's risk management is structured around a "Three Lines of Defense" framework: 1) Front office, 2) Risk management departments, and 3) Internal Audit. Governance is overseen by committees including the Board Risk Committee (BRC) and the Group Risk Management Committee (GRMC)[706][705] - In response to the U.S. Prime Brokerage Event of March 2021, which resulted in significant losses, Nomura launched a comprehensive Risk Management Enhancement Program focusing on business strategy, oversight, risk management functions, and fostering a stronger risk culture[730][736][737] Value at Risk (VaR) - 95% Confidence Interval (as of March 31, 2022) | Risk Type | VaR (¥ Billions) | | :--- | :--- | | Equity | 1.4 | | Interest rate | 2.3 | | Foreign exchange | 0.9 | | Diversification Benefit | (1.9) | | Total VaR | 2.7 | Top 10 Country Exposures (as of March 31, 2022) | Country | Exposure (¥ Billions) | | :--- | :--- | | United States | 3384 | | Japan | 2971 | | United Kingdom | 1130 | | Germany | 589 | | Singapore | 231 | Description of Securities Other Than Equity Securities This section addresses non-equity securities and details fees payable by ADR holders, including charges for services and fees waived by the depositary Fees Payable by ADR Holders | Type of Service | Amount of Fee (U.S. Dollars) | | :--- | :--- | | Execution and delivery of Receipts | $5.00 or less per 100 ADSs | | Surrender of Receipts | $5.00 or less per 100 ADSs | | Cash distribution | $0.02 or less per ADS | | General depositary services | $0.02 or less per ADS (per year) | - From April 1, 2021, to March 31, 2022, The Bank of New York Mellon, as depositary, waived a total of $180,935.37 in fees associated with the administration of Nomura's ADR program[826] PART II Controls and Procedures This section confirms the effectiveness of Nomura's disclosure controls and internal financial reporting controls as of March 31, 2022 - Based on an evaluation as of March 31, 2022, the Group Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[831] - Management concluded that the company's internal control over financial reporting was effective as of March 31, 2022, based on the COSO framework. The independent auditor, Ernst & Young ShinNihon LLC, concurred with this assessment[832] Audit Committee Financial Expert The Board of Directors has identified Mr. Noriaki Shimazaki as an "audit committee financial expert" who meets NYSE independence requirements - The Board of Directors has determined that Mr. Noriaki Shimazaki, a member of the Audit Committee, qualifies as an "audit committee financial expert" and meets NYSE independence requirements[834] Code of Ethics Nomura's code of ethics, including the "Nomura Group Code of Conduct," was revised in March 2022 to strengthen the firm's risk culture - The company's code of ethics consists of the "Nomura Group Code of Conduct" and the "Nomura Group Code of Ethics for Financial Professionals"[835] - In March 2022, the "Nomura Group Code of Conduct" was revised to include a new section on "Managing Risks Appropriately" to strengthen the firm's risk culture[836] Principal Accountant Fees and Services This section details fees paid to Ernst & Young ShinNihon LLC for services, primarily audit, and outlines the Audit Committee's pre-approval policy Principal Accountant Fees | Fee Category | FY 2021 (¥ Billions) | FY 2022 (¥ Billions) | | :--- | :--- | :--- | | Audit Fees | 3.532 | 3.915 | | Audit-Related Fees | 0.144 | 0.103 | | Tax Fees | 0.137 | 0.143 | | All Other Fees | 0.026 | 0.106 | | Total | 3.839 | 4.267 | - The Audit Committee has adopted a pre-approval policy with two procedures, "General Pre-Approval" for routine services and "Specific Pre-Approval" for other services, to ensure auditor independence[839][840] Purchases of Equity Securities by the Issuer and Affiliated Purchasers This section outlines Nomura's share repurchase activities, including the completion of a FY2022 buyback program and the authorization of a new program - During the fiscal year ended March 31, 2022, the Company purchased a total of 80,020,237 shares, with 80,000,000 of those being part of a publicly announced buyback program[844][846] - On October 29, 2021, the Board authorized a share buyback program for up to 80 million shares or ¥50 billion, which was completed by December 2021[846] - A new share buyback program was announced on April 26, 2022, authorizing the repurchase of up to 50 million shares or a maximum of ¥30 billion, running from May 17, 2022, to March 31, 2023[849] Corporate Governance This section highlights differences between Nomura's Japanese corporate governance practices and NYSE standards, particularly regarding committee composition and equity compensation approvals - As a foreign private issuer, Nomura is permitted to follow its home country (Japan) corporate governance practices instead of certain NYSE listing standards[852] - Unlike NYSE rules requiring a majority of independent directors on the board, Japanese law for a Company with Three Board Committees requires a majority of outside directors on the audit, nomination, and compensation committees, a standard which Nomura meets[854] - Equity compensation plans do not require shareholder approval under the Companies Act of Japan; they are determined by the Compensation Committee, which differs from the general requirement for NYSE-listed U.S. companies[855] PART III Financial Statements This section presents Nomura's consolidated financial statements prepared under U.S. GAAP, including auditor reports, key financial statements, and detailed notes on accounting policies and contingencies - The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP)[871][924] - The independent auditor, Ernst & Young ShinNihon LLC, identified two critical audit matters: the fair value of less liquid financial instruments (Level 3) and contingencies for investigations, lawsuits, and other legal proceedings[875][877] - A significant event impacting the financial statements was the U.S. Prime Brokerage Event, which resulted in total losses of ¥245.7 billion in FY2021 and an additional ¥65.4 billion in the first quarter of FY2022, partially offset by a subsequent recovery of ¥14.7 billion[1740][1741][1742] Exhibits This section lists all exhibits filed with the annual report, including Articles of Incorporation, board regulations, the ADS Deposit Agreement, and the Code of Conduct - Key exhibits filed with the report include the Articles of Incorporation, Regulations of the Board of Directors and its committees, the Form of Deposit Agreement for ADSs, and the Nomura Group Code of Conduct[863]