The debacle triggered a record 16% drop in Nomura’s shares on Monday, wiping $3.5 billion from its market value and threatening a turnaround executives had hoped would herald a new era of more sustainable profits. Instead, a $2 billion claim on a single client risks largely erasing Nomura’s pretax profits for the second half of the year ending March 31, according to a Jefferies Financial Group report.

“Nomura may still have a lot to learn from other companies about how to control loss limits,” said Hideyasu Ban, an analyst at Jefferies in Tokyo. “It’s hard to deny that their top management has responsibility for what’s happened.”

Nomura has begun assessing the cause of the possible loss and it’s too early to say how it might impact profit, according to an executive at the firm, who asked not to be identified and declined to say how much it has unwound the Archegos positions. Under Okuda, who became CEO last April, net income reached a 19-year high of 308.5 billion yen ($2.8 billion) in the nine months ended December, driven by a boom in trading and investment banking at home and abroad.

“The unexpected loss may end the relative honeymoon” for Okuda, said Michael Makdad, an analyst at Morningstar Inc. “Okuda’s term so far had shown a remarkable turnaround from losses in 2019 to very strong earnings in 2020, thanks to its U.S. operation.”

The U.S. business has been a big driver of the profit recovery, led by operations such as equity derivatives and securitized products.

While Nomura said the potential loss won’t impact its financial soundness, analysts expect it will be forced to trim dividends and scale back share buyback plans. The stock was down for a third day on Wednesday, falling 1% at 9:35 a.m. in Tokyo, paring its gain over the past 12 months to 30%.

Nomura representatives weren’t immediately able to comment.

Global investment banks gathered on a hastily arranged call with Hwang last week as executives realized they might be facing the biggest hedge fund blowup since Long-Term Capital Management in the 1990s. Nomura was involved in the effort among some of Archegos’s prime brokers to reach a temporary standstill to figure out how to untie positions without sparking panic, people familiar with the matter said, asking not to be named discussing a private matter.

By Thursday night, however, some banks had shot out notices of default to Archegos and by Friday the unprecedented selling began.

Credit Suisse Group AG has also said it may face “significant” losses. Mitsubishi UFJ Financial Group Inc.’s securities unit estimated a potential $300 million loss. Goldman Sachs Group Inc., ahead of the pack on unloading positions, is telling investors the impact on its financial results will probably be immaterial. Deutsche Bank AG said it escaped too.

The episode “may lead to concerns over the brokerage’s risk management and whether it could be just a one-time loss,” Bloomberg Intelligence analyst Shin Tamura wrote in a note. The focus may turn to issues over upper trading limits, required margin and risk calculation, he said.

Nomura has had a long relationship with Hwang, an executive at the Japanese firm said Tuesday. While it’s unclear when the dealings started, Hwang has a checkered past. He shuttered Tiger Asia Management and Tiger Asia Partners after settling a lawsuit with U.S. regulators in 2012 accusing them of insider trading and stock manipulation. Hwang and the firms paid $44 million, and he was barred from the investment advisory industry.

Japanese authorities are now looking at Nomura’s role in the blowup. The Financial Services Agency will probably discuss risk management and other issues with the brokerage, an FSA official told reporters on Monday. Chief Cabinet Secretary Katsunobu Kato said the government will monitor the situation while sharing information with the regulator.

Overseas Woes

The issue is the latest in a series of setbacks for Nomura as it tries to compete with investment banks around the world to make up for limited opportunities at home. Most famously, its ill-fated acquisition of Lehman Brothers Holdings Inc. assets during the 2008 global financial crisis caused costs to swell and culminated in writedowns and a rare annual loss a decade later.

Nomura embarked on a $1 billion restructuring of its global wholesale division two years ago, which it’s on course to complete well ahead of its March 2022 target. Under then-CEO Koji Nagai it began focusing on more stable revenue earners such as asset management, a move that his successor Okuda has been following through on.

Okuda, 57, was the first CEO in years to come predominantly from the wholesale business, spending most of his three-decade-long career working with companies, advising on mergers and pitching fundraising ideas. He is pushing an expansion in that area by forging deeper ties with unlisted companies.

His international experience also set him apart, gathered first during an MBA at the Wharton School and more recently as head of the Americas.

“The nature of Nomura’s overseas business, particularly in New York, leads it to sometimes generate very large profits and sometimes significant losses when adverse events occur,” said Morningstar’s Makdad. “The firm may tighten its willingness to take risk in some areas where it has recently been aggressive, such as U.S.-listed equity options.”