Nomura Profit Jumps 31%, Beating Estimates on Trading Income (2)

(Bloomberg) -- Nomura Holdings Inc.’s second-quarter profit jumped 31 percent, beating analysts’ estimates as a surge in trading income made up for a slump in brokerage commissions and investment banking.

Net income climbed to 61.2 billion yen ($585 million) in the three months ended Sept. 30 from 46.6 billion yen a year earlier, Japan’s largest securities firm said in a statement Thursday. That exceeded the 45 billion yen average estimate of four analysts surveyed by Bloomberg.

The firm posted a second straight quarter of profit overseas after Chief Executive Officer Koji Nagai cut hundreds of jobs in Europe and the U.S. and Nomura joined Wall Street banks in benefiting from a rebound in bond trading. At home, the company faces increased competition for business from Japanese who are hesitant to invest as interest rates plunge and a stronger yen clouds the outlook for stocks.

“Nomura’s profit is recovering because of fixed-income trading and its cost cutting in the U.S. and Europe,” said Takehito Yamanaka, a Tokyo-based analyst at Credit Suisse Group AG. “But that’s limited by the loss in risk appetite of Japanese individuals.”

Half way through the fiscal year, Nagai, 57, is on track to end six years of annual losses outside of Japan. The firm posted an overseas pretax profit of 23.2 billion yen last quarter, the highest since at least 2002, when the company began disclosing the figures. Nomura has cut 900 jobs after announcing six months ago that it will shrink operations in Europe and the Americas, people with knowledge of the matter said.

Overseas Optimism

Here are other key figures from the report:

• Revenue rose 2 percent from a year earlier to 426.1 billion yen.

• Brokerage commissions slid 33 percent to 74.6 billion yen.

• Trading profit soared 90 percent to 118.8 billion yen.

• Investment-banking fees declined 48 percent to 23.4 billion yen.
  

The unexpected Brexit result was a boost for fixed-income business overseas as clients adjusted their portfolios and hedging positions, Chief Financial Officer Takumi Kitamura said at a news briefing in Tokyo. “The sustainability of our overseas operations is becoming firmer,” he said.

Nomura also posted a 7.7 billion yen unrealized gain on the value of its equity securities holdings, compared with a 10.9 billion yen loss a year earlier, after Japanese stocks rebounded in the quarter.

While the Nikkei 225 Stock Average rose 5.6 percent in the three months, it remains down 8.9 percent this year, heading for the first annual decline since 2011. Nomura shares, which closed 1.4 percent higher before the earnings were released, have slid 26 percent in 2016.

Stiffer Competition

Mizuho Financial Group Inc. is among banks that are boosting their securities operations to compete with Nomura even as investors lose enthusiasm for Prime Minister Shinzo Abe’s efforts to revive the economy. Mizuho added dozens of stock analysts and salesmen in the past year, and is seeking to overtake Nomura as the nation’s top equity firm by client assets and revenue, Yohei Osade, the lender’s global head of Asian equities, said in an interview this month.

Last quarter’s drop in investment-banking fees came as Nomura lost ground in the rankings for bond and merger deals in Japan.

The firm is the top manager of equity offerings in Japan so far this year, data compiled by Bloomberg show. It’s ranked fourth for bond underwriting, down from third for all of 2015, and slid to eighth among advisers on Japanese mergers and acquisitions, from second last year, according to the data.

Kitamura said the appetite for investing in Japan should pick up after uncertainties over the U.S. election and an interest-rate increase by the Federal Reserve subside.

“It’s quite cloudy but we expect to see patches of sunshine ahead,” the CFO said.

(Updates with charts and CFO comments in seventh paragraph.)

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net. To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Darren Boey

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