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Nomura Settles with Monte Paschi; to Incur $287M Loss in Q2

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Japanese brokerage giant, Nomura Holdings, Inc.NMR , reached an agreement with Italy based Banca Monte dei Paschi di Siena SpA to settle claims related to derivatives transactions known as 'Alexandria', entered between the two companies in England and Italy.

Nomura will shell out €440 million to Monte dei Paschi in order to unwind the transactions.

Nomura stated, "The Company believes that the transactions were conducted legally and appropriately, and does not accept allegations made against it or admit any wrongdoing in connection with the settlement."

Owing to the settlement, Nomura expects to record ¥ 34.5 billion ($287 million) negative impact in its second quarter (ending September 2015) results.

As part of the transactions in 2009, Nomura restructured the Alexandria Notes, and later entered into further deals with Monte dei Paschi as counterparty. However, in March 2013 Monte dei Paschi commenced legal proceedings against Nomura seeking damages for the losses incurred from the transactions.

Monte dei Paschi, one of the oldest banks in the world, was hit hard by the euro-zone debt crisis and a fiasco over derivative contracts, including Alexandria. Notably, the bank which was bailed out twice by the Italian government ended up as the weakest lender in Europe in a review by the European Central Bank last year.

In connection to the latest settlement, Chief Executive Officer Fabrizio Viola of Monte dei Paschi mentioned, "I'm satisfied that we have now closed the last legacy linked with the previous management of the bank, an important outcome that strengthens the equity of Banca Monte dei Paschi, improves the expected profitability and normalizes our financial profile."

The settlement certainly brings some relief to Nomura as it reduces the litigation overhang. However, the adverse effect on the company's financials stemming from the case cannot be ignored.

Nomura currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the foreign banks space include Mitsubishi UFJ Financial Group, Inc. MTU , Mizuho Financial Group, Inc. MFG and Deutsche Bank AG DB . All these stocks sport a Zacks Rank #2 (Buy).

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NOMURA HLDG-ADR (NMR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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