20-F/A: Nomura Holdings Restates Financials, Cites Internal Control Weakness in Cash Flow Reporting

Nomura Holdings amends its annual report to restate consolidated financial statements due to material presentation and classification errors in the statement of cash flows, identifying a material weakness in internal control over financial reporting.

Summary

• Nomura Holdings has amended its annual report on Form 20-F/A to restate its consolidated financial statements for fiscal years 2022 and 2023.
• The restatement addresses material presentation and classification errors identified within the consolidated statement of cash flows.
• These errors include incorrect classification of cash flows from non-trading loans and other transactions, as well as presentation errors related to netting.
• The company has identified a material weakness in its internal control over financial reporting related to these errors.
• Nomura is implementing remediation actions to address the material weakness and prevent similar errors in the future.
• The amendment includes updated certifications from the Group CEO and CFO, as well as a revised report from Ernst & Young ShinNihon LLC.
• The company has adopted a compensation recovery policy pursuant to NYSE listing standards.
• The filing does not reflect any new information or subsequent events since the original filing date, except for the changes expressly described.

Sentiment

Score: 5

Explanation: The document is largely factual, detailing a restatement and internal control weakness. While the restatement is a negative event, the company is taking steps to remediate the issue. The sentiment is neutral overall.

Positives

• The company is implementing remediation actions to address the material weakness.
• Gains of 12,025 million were recognized in the year ended March 31, 2023 related to the U.S. Prime Brokerage Event.
• The company has adopted a compensation recovery policy pursuant to NYSE listing standards.

Negatives

• Nomura Holdings restated its consolidated financial statements for fiscal years 2022 and 2023 due to errors in the statement of cash flows.
• A material weakness in internal control over financial reporting was identified in connection with the cash flow statement errors.
• Income before income taxes for the year ended March 31, 2022 includes a loss of approximately 62.0 billion related to legacy transactions in the U.S. from before the global financial crisis (2007 2008).
• An impairment loss of 47,661 million was recognized in respect of Nomuras investment in Nomura Real Estate holdings, Inc. during the year ended March 31, 2021.

Risks

• The material weakness in internal control over financial reporting could result in the company not being able to provide financial information in an accurate, timely and reliable manner.
• This may undermine confidence in the company's published financial information and other reported information by users of our consolidated financial statements, including holders of our securities, resulting in reductions in the price of our common stock and/or ADRs as well as limit our access to capital markets, impact client or counterparty appetite to enter into transactions with us and subject us to potential regulatory investigations and sanctions.

Future Outlook

The company plans to maintain appropriate capital ratios and aim for sustainable growth through optimal capital allocation, balancing investment and shareholder returns.

Industry Context

The financial services industry is facing increasing competition from non-traditional players, including FinTech companies and non-financial companies entering the financial services sector.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or benchmarks.
• However, it mentions that the company competes with other independent Japanese securities firms, securities firms affiliated with commercial banks, and overseas firms.
• It also notes increased consolidation and business alliances in the financial services industry, leading to increased competition.

Corporate Governance

Legal Proceedings

• The company is involved in various investigations, lawsuits and other legal proceedings.
• These include claims for reimbursement of tax credits in Italy, actions related to Fairfield Funds and Bernard Madoff, breach of contract claims related to RMBS, and investigations by the U.S. Department of Justice, SEC, and CFTC.
• The company is also involved in legal proceedings related to the Transactions with Banca Monte dei Paschi di Siena SpA (MPS).
• NIHK and NSIS were served with a complaint filed in the Taipei District Court relating to a syndicated term loan to a subsidiary of Ultrasonic AG.
• NIP and the Company were named as addressees in a decision issued by the European Commission in which NIP, the Company and various other third party banks have been found to have infringed EU competition law in connection with their activity in the primary and secondary markets for European Government Bonds (EGB).
• Nomura is responding to requests for information from the U.S. Commodity Futures Trading Commission (CFTC) in relation to swap trading related to bond issuances.
• NSI also responded to requests for information from the Securities and Exchange Commission (SEC) in connection with an investigation of compliance with records preservation requirements relating to the use of non-Nomura approved messaging platforms for business communications.
• Stichting Vestia, a Dutch housing association and former counterparty, asserted a claim against NIP relating to derivative transactions entered into between Vestia and NIP between 2009 and 2011.
• In the context of a secured financing and the enforcement of the related pledge agreements following events of default attributable to the counterparty, on February 8, 2022, two former pledgors served a formal notice stating their intention to commence legal proceedings against Nomura European Investment Limited (NEI) as lender and NIP as security agent.

Related Party Transactions

• Nomura is one of the major clients of NRI.
• Nomura has participated in a secondary offering at Nomura Research Institute as a seller on December 5, 2022, and sold 13,000,000 ordinary shares it held at 37,528 million to third parties.
• As a result of the transaction, a gain of 28.0 billion was recognized in earnings within RevenueOther during the year ended March 31, 2023.

Stakeholder Impact

• Shareholders may experience a decrease in the share price due to the identified material weakness and restatement.
• Clients and counterparties may have reduced confidence in the company due to the identified material weakness.
• Employees may be affected by changes in compensation or internal control procedures.
• The company's reputation may be damaged due to the identified material weakness and restatement.

Next Steps

• The company is in the process of implementing remediation actions to address the material weakness in internal control over financial reporting.
• The company will continue to monitor and manage the transfer of funds among Nomura Group on the basis of the relevant laws and regulations.
• The company will continue to review its entire business portfolio while looking at the competitive environment, and intend to implement our strategies in consideration of potential risks.

Key Dates

Keywords

financial statements, internal control, cash flow, restatement, Nomura Holdings, material weakness, financial reporting