Moody's Investors Service warned last Wednesday that it could cut Nomura Holdings Inc.'s credit rating to one notch above junk grade, citing ongoing losses from its international capital-market activities at a time when Japan's biggest brokerage is seeking to return to profitability overseas.  If Moody's proceeds with the rating cut, it would be the first rating cut for the brokerage since May 2009 - following its acquisition of Lehman Brothers' Europe and Asia operations. Needless to say, Nomura expressed disappointment at Moody's move, which comes after the firm announced a billion-dollar cost-cutting drive and its first quarterly loss in more than 2 years, as it grapples with the European debt crisis.  However, Moody's said in a statement that the brokerage firm faces particular difficulties among its peers, as it suffers from low underlying profitability at its wholesale business.  And even Nomura's strong network in its retail business and domestic capital market activities "may not be sufficient to offset the risks from its international capital market activities." Cost Cutting Program. Nomura points to its $1.2 billion cost-cutting program as a valid response to the concerns.  Part of the firm's problems arose when, in 2008, it added about 8,000 employees from Lehman Brothers' operations in Europe and Asia.

The serious downside of such a rating cut - if it happen - would be that "Nomura could be forced to scale back its overseas business given rising funding costs," an analyst at a western brokerage firm said.

Yet, despite Nomura's efforts over the past several years, it has been struggling with generating profits abroad, posting a pretax loss of ¥52.42 billion ($674.5 million) during the July-September quarter. For further details, go to:   [WSJ Online, 11/10/11]