Baa3 is nine levels down from the top investment grade of Aaa that Moody’s said holds “the smallest degree of risk.” Nomura presently holds a Baa2 rating.
“Baa3 isn’t junk bonds” says Shingo Watanabe, a long-time employee of foreign banks in Japan. “But it’s only one step above it. It’s the lowest a stock or bond can be possibly rated and still be considered investment grade. The next step below is Ba1 and what any banker would consider a junk bond.”
Moody’s does not refer to them as junk bonds but as speculative-grade bonds and in its own literature refer to ratings of Ba1 and below as questionable credit quality.
In its biannual report issued in September, Nomura chalked up the equivalent of more than 320 million dollars of losses.
“The overseas operations of Nomura continue to be unprofitable,” stated Moody’s as among the reasons for a possible downgrade.
In addition to the possible downgrade of Nomura, Moody’s indicated that the stocks issued by another large Japanese brokerage, Daiwa Shoken, are also under review and may be downgraded by one rank to Baa3.
In the U.S. rating is dominated by two companies: Moody’s and Standard & Poor’s. In addition, Fitch Ratings is also influential. Each uses a slightly different scale. With Moody’s it goes from Aaa to C. Borrowers whose debt is highly rated can borrow at lower interest rates than borrowers whose debts is not.