Nomura Profit Misses Estimates on Weak Wholesale Business

Nomura Holdings Inc.’s profit rose less than analysts estimated in the fiscal first quarter, as soft wholesale results and another loss abroad overshadowed a rebound in retail business.

(Bloomberg) — Nomura Holdings Inc.’s profit rose less than analysts estimated in the fiscal first quarter, as soft wholesale results and another loss abroad overshadowed a rebound in retail business. 

Net income climbed to 23.3 billion yen ($163 million) in the three months ended June 30 from 1.7 billion yen a year earlier, the company said in a statement Tuesday. That missed the 34.3 billion yen average of three analyst estimates compiled by Bloomberg. 

Chief Executive Officer Kentaro Okuda is trying to revive profitability after net income fell in his first three years in charge of Japan’s biggest brokerage. The country’s stock market rally provided a tailwind in the quarter by boosting business catering to individual clients, but the company continued to struggle with high costs and lackluster performance in its global operations. 

“It was a disappointing quarter given the strong markets in Japan and some rivals’ better results,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. 

Okuda announced plans in May for a major review across the company in a bid to achieve a return on equity of 8% to 10% over the medium term. The gauge of profitability stood at 2.9% for the quarter. 

Net revenue at the core retail division jumped 29% from a year earlier, thanks to strong growth in trading and sales of investment trusts, Nomura said in a presentation. Japanese stocks are trading at a 33-year high. 

But Nomura’s overseas operations posted a pretax loss of 23.9 billion yen, its second straight quarterly deficit, led by the Americas and Europe. The Japanese company has lost money abroad in 10 of the past 12 years. 

The wholesale division, which runs investment banking and trading, saw revenue drop 4%, fueled by a 9% decline in the global markets business. Fixed income revenue fell 14%, not as bad as similar trading operations at some US peers including Goldman Sachs Group Inc., but in contrast with gains at local competitors including Daiwa Securities Group Inc. and Mizuho Securities Co. 

Some international market participants stayed on the sidelines due to economic uncertainty, although credit had a strong quarter globally and the Japan equities business did well on inflows from abroad, Nomura said. 

“It is a fact that the trading volume in the market has decreased considerably” because of uncertainty over when the Federal Reserve will stop raising interest rates, Chief Financial Officer Takumi Kitamura said at a news briefing in Tokyo. “But I honestly don’t think this environment will continue forever.”

Investment banking revenues climbed 29%, led by equity underwriting. 

The Tokyo-based firm is trying to trim expenses to remain competitive while making a renewed push into areas such as European equities business in search of revenue abroad.

Nomura is targeting 50 billion yen in cost cuts by March 2025 and should be able to achieve 60% of those by the end of the current fiscal year, Kitamura said.

The wholesale division returned to profit on a pretax basis, from losses in the previous two quarters, as the ratio of costs to income improved to 99% from 108% three months earlier. 

Still, that remains too high and must be dealt with immediately, Kitamura said. “We have managed to secure profit at our wholesale business, but the level isn’t necessarily satisfactory,” he said. 

In its investment management division, revenue surged and assets under management climbed to a record 76.1 trillion yen. At the same time, it booked a mark down in valuation related to its stake in American Century Investments. 

Shares of Nomura closed 1% higher before the results were released. The stock has gained 21% this year, versus the benchmark Topix Index’s 24% advance. 

(Updates with comment from analyst in the fourth paragraph)

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.