Nomura Holdings Inc. Chief Executive Officer Kentaro Okuda slashed earnings targets across the firm’s main businesses and plans a review to revive profitability after net income fell for three straight years under his leadership.
(Bloomberg) — Nomura Holdings Inc. Chief Executive Officer Kentaro Okuda slashed earnings targets across the firm’s main businesses and plans a review to revive profitability after net income fell for three straight years under his leadership.
Japan’s biggest brokerage pointed to a changing macro environment and interest-rate hikes as it lowered its combined pretax profit goal for the retail, wholesale and investment management divisions to 288 billion yen ($2.1 billion) for the year ending March 2025, from the previous target of as much as 390 billion yen, according to a presentation at the firm’s investor day on Thursday.
Okuda said the firm is planning to conduct a major review into its ways of doing business for “all of the front, middle and back offices” with the goal to achieve return of equity of 8% to 10% over the medium term, after the key measure of profitability slipped to 3.1% in the year ended March.
The moves underscore the challenges for Okuda as rate hikes and geopolitical tensions dampen investor sentiment. Nomura’s profit has fallen since he took over in 2020, buffeted by setbacks ranging from the collapse of hedge fund Archegos Capital Management to the impact from its ownership of a stake in a US mutual fund manager.
Still, Nomura said the shift to higher rates has seen growing opportunities in areas such as private markets, alternative assets and Japan rates, where the brokerage has seen a revival and a return to levels before the nation’s negative-rate policy was introduced.
Nomura’s shares rose as much as 1.4% in Tokyo, in line with Japan’s benchmark Topix index, before paring some of the gains.
“I think expectations for structural reform are stronger than the downward revision of the figures,” said Rina Oshimo, a senior strategist at Okasan Securities. “However, the stock is not rising that much, probably limited by the downward revision backed by specific reasons.”
In the wholesale division, which runs investment banking and trading, Nomura is now targeting less fee and commission revenue, while expenses at the business are likely to be higher. Across the firm, Nomura will target cost cuts of 50 billion yen by March 2025 and an additional 12 billion yen reduction over the longer term.
Read More: Nomura Profit Falls for Third Straight Year Under CEO Okuda
Chief Financial Officer Takumi Kitamura said last month that inflation has been a “drag” on Nomura, making it necessary to raise salaries to hire and retain talent while driving higher energy costs.
Wholesale head Christopher Willcox said the division’s profitability has been challenged due to cost inefficiencies and a lack of scale. He wants to cut the ratio of costs to 80% of income over the medium term, down from 96% in the last fiscal year. Willcox will also employ a “targeted hiring plan” to improve scale, he said in a presentation. He aims to increase global markets headcount by 5% by March 2025.
Nomura doesn’t plan major headcount reductions in investment banking, Willcox said at a briefing.
A Wall Street veteran, Willcox joined Nomura in 2021, one of the most tumultuous periods in its history, and took the helm of the wholesale arm in October last year. The British national said in a recent interview that he will make it a priority to invest in Nomura’s business in Japan, where the company generates most of its profit.
“The lowered targets are Nomura recognizing the reality that its operating environment has deteriorated in the past 18 months,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. “Given the low level of Nomura’s recent return on equity we want to see the firm not just relying on an eventual rebound in fee pools, but doing more to control costs that are rising due to a weak yen and inflation.”
–With assistance from Russell Ward, Adam Haigh and Winnie Hsu.
(Adds comments from Nomura CEO and wholesale chief, further details from investor day)
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