Company analysis of Nomura Securities as of 2013

1. Nomura Securities
Securities Company Analysis
June 11, 2013

2. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

3. Securities Firms
Nature of the Business
1/30
Investment Banks Securities FirmsVS
IPO
Secondary
Market
Securities
Brokers
Securities
Dealers
Full-Service
Brokers
Discounted
Brokers

4. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

5. } Securities Acts Amendment of 1975: Removal of fixed
commissions on trades led to creation of discount
brokerage firms.
} Internet and Technology increased trade and accessibility.
} Recent subprime market problems and financial crisis
caused investors to question rating agencies and
securities firms’ credentials and practice.
} Unstable European markets, Japan’s monetary policy
changes, decreased M&A activities and change in trading
regulations lead to a negative outlook for securities firms
in 2013.
A variety of factors will affect the industry
Industry Outlook
2/30

6. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

7. Gross Domestic Product
Major Factors & Risks
3/30Source: International Monetary Fund (IMF) 2013

8. Exchange Rate Effect on Nomura
Major Factors & Risks
4/30Source: World Bank (2013)

9. Deflation Risk for Japanese Assets
Major Factors & Risks
5/30Source: International Monetary Fund (IMF) 2013

10. Negative Effect of Regulatory Reforms (Basel III)
Major Factors & Risks
6/30Source: Nomura (2013)

11. Impact of Regulatory Reforms
Major Factors & Risks
7/30Source: Nomura (2013)

12. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

13. } 1980s eased financial regulation
} 1999 Abolition of Glass-Steagal Act
} 2007 Real estate price collapse
} MBS, CDO value down
} FRS interest rate cut
} Financial Crisis
Dodd-Frank Reform & Consumer Protection
Recent Changes in Regulations
8/30

14. } The consolidation of regulatory agencies, elimination of
the national thrift charter, and new oversight council to
evaluate systemic risk
} Comprehensive regulation of financial markets, including
increased transparency of derivatives
} Consumer protection reforms
} Tools for financial crises, including a "resolution regime“
} Various measures aimed at increasing international
standards and cooperation
Dodd-Frank Reform & Consumer Protection
Recent Changes in Regulations
9/30

15. } Title I – Financial Stability
} Title II – Orderly Liquidation Authority
} Title III – Transfer of Powers to the Comptroller,the FDIC, and the Fed
} Title IV – Regulation of Advisers to Hedge Funds and Others
} TitleV – Insurance
} TitleVI – Improvements to Regulation
} TitleVII – Wall StreetTransparency and Accountability
} TitleVIII – Payment, Clearing and Settlement Supervision
} Title IX – Investor Protections and Improvements to the Regulation of Securities
} Title X – Bureau of Consumer Financial Protection
} Title XI – Federal Reserve System Provisions
} Title XII – Improving Access to Mainstream Financial Institutions
} Title XIII – Pay It Back Act
} Title XIV – Mortgage Reform and Anti-PredatoryLending Act
} Title XV – Miscellaneous Provisions
} Title XVI – Section 1256 Contracts
Dodd-Frank Reform & Consumer Protection
Recent Changes in Regulations
10/30

16. } Positive view
} Preventing Financial Crisis
} Block public funding
} Promote the protection of financial consumers
} Negative view
} Increasing government intervention in the economy
} Did not solved FannieMae and Freddie Mac2 which
major supplier in the housing market
Dodd-Frank Reform & Consumer Protection
Recent Changes in Regulations
11/30

17. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

18. Non-consolidated Balance Sheet
Asset & Liability Structure
Source: http://www.ge.com/company/index.html 1/30

19. Non-consolidated balance sheet
Asset & Liability Structure
Source: http://www.ge.com/company/index.html 1/30

20. Funding Sources and Liquidity
Asset & Liability Structure
Source: http://www.ge.com/company/index.html 1/30

21. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

22. Three main sources of operating revenue
55%33%
12%
Commissions
Gain on Trading
Interest & Dividends
Income Structure
Source: Nomura Securities Unaudited Income Statement (year ended March 31,2013) 15/30

23. Commissions are a vital source of revenue
} Commissions consisted of
over 50% of operating
revenue in 2013, including:
} Brokerage commissions
} Commissions for
underwriting,secondary
distribution and solicitation
for selling and others for
professional investors
} Fees for offering, secondary
distribution and solicitation
for selling and others for
professional investors
} Other commissions
22%
7%
43%
28% Brokerage
Underwriting
Offering
Other
Income Structure
Source: Nomura Securities Unaudited Income Statement (year ended March 31,2013)
26%
3%
58%
13% Stocks
Bonds
Investment Trust
Certificates
Others
16/30

24. Trading revenue increased substantially
Income Structure
17/30Source: Nomura Securities Unaudited Income Statement (year ended March 31,2013)
15%
85%
March 31, 2013
Stocks
Bonds &
Forex
5%
95%
March 31, 2012
Stocks
Bonds &
Forex
Trading gains made up 33% of operating revenue in 2013, and
increased 26% from 2012. Stocks also increased substantially as
a percentage of total trading revenue.

25. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

26. Structure of Nomura’s Risk Management
Risk Management
18/30

27. } The Group Integrated Risk Management Committee
(GIRMC) is chaired by the Group CEO and includes:
} The Group COO
} Business division CEOs
} CRO (Chief Risk Officer)
} Other persons designated by the Group CEO
} Under the direction of the Executive Management Board,
GIRMC is responsible for deliberating and deciding on
important risk management issues for the Nomura group.
Structure of Nomura’s Risk Management
Risk Management
19/30

28. 1. Market Risks Management: Performance Review Committee
(PRC)
2. Credit Risks Management: Investment Risk Supervisory
Committee (IRSC)
3. Liquidity Risks Management:Trading Divisions
4. Events Risks Management
5. Administrative Risks Management
6. Financial Reporting Risks Management
7. Information System Risks Management
8. Legal compliance Management: Legal & Compliance
Department
9. Reputation Risks Management
Nine Different Departments
Risk Management
20/30

29. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

30. } Culture Crash
1. Lehman: high risk tolerance, frequent use of leverage,
and swift decision making
2. Nomura: more hierarchical, conservative, and favored
more stable revenues based on moderate levels or risk
taking
Challenges Facing Nomura
Challenges & Opportunities
21/30

31. } In 2008, Nomura’s speedy decision to acquire Lehman
Asia, Europe, Middle East
} Financial crisis Opportunity
} Synergy Potential
Opportunities
Challenges & Opportunities
30/30Source: Nomura (2013)
Nomura Lehman
Brothers
Revenue ratio
from overseas
Only 20% Europe, Middle East,Africa
(EMEA, 35%),Asia-Pacific
(17%)= 52%
Primary Base Domestic Mutual Funds,
Institutional Investors
Hedge Funds
Equity Capital
Markets Business
Niche Market One of the leading player
globally

32. } In FY 2008, Nomura recorded a net loss of 208.2 billion
yen, the worst loss in its history
} Recovery: In FY 2009’s Annual report, a net profit of 67.8
billion yen
} Nomura has posted seven consecutive quarters in the
black, up to the fourth quarter of 2010
Financial Performance
Challenges & Opportunities
23/30

33. Costs & Benefits
Challenges & Opportunities
24/30

34. Table of Contents
} Securities Industry Analysis
} Nature of the Business
} Industry Outlook
} Major Factors & Risks
} Recent Changes in Regulations
} CompanyAnalysis
} Asset & Liability Structure
} Income Structure
} Risk Management
} Challenges & Opportunities
} Conclusion

35. Future of Nomura – Management Target
Conclusion
25/30Source: Nomura (2013)

36. Management Assumptions
Conclusion
26/30Source: Nomura (2013)

37. Key Milestones
Conclusion
27/30Source: Nomura (2013)

38. Faster Growth in Asia
Conclusion
28/30Source: Nomura (2013)

39. Increase Asia-related Business
Conclusion
29/30Source: Nomura (2013)

40. Strengths
•Additional cost reductions
• Closer collaboration between Fixed
Income and Equities
•Wholesale strategy
• Closer collaboration and efficient use of
resources
Weaknesses
• Differentiated regional strategies
• Burden of Lehman Brothers
• Investments in 2012 to Japanese
companies were hit by “Abenomics”
Opportunities
• Continuation of growth in Asia (share of
world GDP is expected to rise from 28%
to 51% in 2051)
Threats
• Fluctuations inYen effecting main
investment projects
• Expected deflation in Japan
• Impact of regulatory reforms
SWOT Analysis
Conclusion
30/30