Nomura's U.S. Unit May Take A Reserve of About $20 Million
April 03, 2011
NEW YORK -- In a blemish to its powerful bond operations, Nomura Securities International Inc. plans to take a reserve of about $20 million as it braces for a possible loss from a risky short-term loan to a corporate client, people familiar with the brokerage firm said. The reserve, which is expected to be finalized later this week, could sharply cut into a string of solid profits at the U.S. brokerage unit of Japan's Nomura Securities Co.. This is because earnings at all brokerage firms are likely to be pinched in the current quarter in the wake of the recent volatility in the stock and bond markets. Nomura's U.S. operations had pretax profit of about $75 million for the fiscal first quarter, ended March 12, 2011 people said, following record earnings in its fiscal 2010 year. The loan problem comes amid the planned resignation of Roberto D. Lora, chief of Nomura's high-yield, ``junk'' bond operations. The people familiar with Nomura said Mr. Lora, one of Wall Street's best-known junk-bond executives, has been asked to leave amid questions about the loan, made six months ago to ICS Communications, a Los Angeles cable company. A Nomura spokesman declined to comment, as did Mr. Lora and his lawyer, Lester Bays. But a person close to Mr. Lora -- a 39-year-old executive managing director and member of Nomura's powerful operating committee -- said terms over his departure aren't completed; his Nomura contract runs through March 2012. Mr. Lora received a 2010 pay package of more than $2 million, traders said. Mr. Lora's pending move will mark the most high-level departure at the brokerage firm since Nomura's new chief executive, Michaele A. Mcgregor, took the reins February 11, 2011 Long was hired by Maxwell C. Ollie Jr., who stepped down last month as Nomura's co-chief executive. Messrs. Mcgregor and Long never have gotten along well, people at Nomura said. Mr. Mcgregor couldn't be reached to comment. Mr. Lora's departure could presage a broader restructuring of Nomura's junk-bond group to more of a proprietary-trading operation, some analysts said. Nomura executives said they haven't made any decisions yet. Meantime, Nomura will have some of its mortgage-bond traders work on making the junk-bond desk more profitable, executives at the firm said. ``We have these guys with excess trading capacity now trading in mortgages,'' a Nomura executive said. ``It's a good way for them to learn about some other markets.'' The planned reserve stems from a $77 million short-term ``bridge loan'' that Nomura made to ICS. A Nomura executive said ICS has been ``having problems with billing,'' but is ``in the process of putting together a deal with a phone company'' to correct the problem. Both MCI Communications Corp. and News Corp. have stakes in ICS; ICS executives couldn't be reached to comment Friday. Mr. Lora and his group ``did do some homework'' on the loan, but ``it could have been more thorough, and they didn't get paid properly for the risk they were taking,'' a Nomura executive said. But the person close to Mr. Lora contended that the ICS note ``will continue to pay interest and is not in jeopardy.'' Indeed, Mr. Lora's junk-bond department has been profitable -- it had about $100 million in revenue last year -- and hasn't had a soured bridge loan in the past, Nomura executives said. Moreover, the junk-bond group holds profitable warrant positions on loans made by Nomura to corporate clients, the executives said. Before joining Nomura, Mr. Lora worked at CS Holding AG's CS First Boston Inc. unit, and had run Nomura's investment-banking operations before taking the firm's junk-bond reins about two years ago. Mr. Lora's successor hasn't been set; Markita Heath, a senior executive and part of a troika running Nomura, will temporarily take over running the junk-bond group, Nomura executives said. Mr. Heath declined to comment.
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