Nomura and MizuhoFace Over $100M Lossfrom Failed Trades

Nomura Holdings Inc. and Mizuho Financial Group Inc. are facing potential losses of over $100 million due to failed stock trades made by investment fund All Blue Capital, led by trader Matt Novak. The fund made a series of wrong-way short bets with multiple counterparties earlier this year and was allegedly unable to settle the trades.

Why this matters: This incident highlights the risks and vulnerabilities in the financial system, particularly when it comes to unregulated investment funds and their dealings with major banks. It also underscores the need for stricter oversight and risk management practices to prevent such losses and maintain stability in the financial markets.

Two units of All Blue Capital were placed into liquidation in the British Virgin Islands in March. Nomura Holdings is potentially facing a loss of 14 billion yen ($89 million), while Mizuho Financial Group is claiming $19 million in unpaid debts from the fund. All Blue Capital is contesting the lawsuit filed by Mizuho in New York.

The failed trades stemmed from a bet placed by All Blue Capital on the stock of Super Micro Computer. The fund, led by trader Matt Novak, bet that Super Micro's shares would decline in value using 190,000 of the firm's shares. However, Super Micro's stock has soared more than 150% this year, causing the company's revenue to surge. Novak's firm failed to repay all the securities, leaving Mizuho with a $19 million loss.

Nomura's chief financial officer, Takumi Kitamura, stated, "We are currently conducting various investigations to recover the debt." He added, "All transactions with that broker have been settled, and all losses arising from this transaction have been booked in the quarter." Nomura has spent years repairing its internal controls after losing almost $3 billion on the collapse of Archegos Capital Management in 2021.

Avalon Capital Partners, a London-based firm, arranged some of the transactions on All Blue's behalf. Matt Novak, a former emerging-markets trader at Commerzbank, is a partner at All Blue and has worked at the company since 2016.

Thefailed stock tradesby All Blue Capital have resulted in potential losses of over $100 million for Nomura Holdings and Mizuho Financial Group. Both banks are involved in a New York lawsuit to recover the $108 million failed settlement for the short selling stock trades. The outcome of the legal proceedings and the extent of the losses for Nomura and Mizuho remain to be seen as the case unfolds.

Key Takeaways

• Nomura and Mizuho face potential losses of over $100 million due to failed stock trades.
• All Blue Capital made wrong-way short bets on Super Micro Computer's stock, which soared 150%.
• Nomura may lose $89 million, while Mizuho claims $19 million in unpaid debts from the fund.
• The incident highlights risks and vulnerabilities in the financial system, particularly with unregulated funds.
• A lawsuit is underway in New York to recover the $108 million failed settlement.