Nomura's Profit Plunges 96% on Losses in Asia, Europe

Nomura Holdings Inc., Japan’s largest brokerage, said profit plunged 96 percent to the lowest in six quarters as trading income and brokerage commissions fell and Asian and European operations posted losses.

Net income plummeted to 1.1 billion yen ($14 million) for the three months ended Sept. 30, from 27.7 billion yen a year earlier, the Tokyo-based company said in a statement today. Revenue for the period fell 10 percent to 320.4 billion yen.

The drop in profit was steeper than those of global rivals including Goldman Sachs Group Inc. and Macquarie Group Ltd. as Chief Executive Officer Kenichi Watanabe struggled to generate business from his 2008 purchase of Lehman Brothers Holdings Inc. operations. Nomura’s shares have tumbled about 50 percent since it acquired the bankrupt U.S. firm’s Asian and European business.

“Profitability looks pale compared with global competitors because Nomura can’t enjoy synergy between the regions as its U.S. expansion is at an early stage,” said Masao Muraki, a director and analyst at Deutsche Securities Inc. in Tokyo. “We’re gradually witnessing Nomura getting some cross-border deals in M&A, but big deals in equity finance are yet to come.”

Nomura is looking abroad as the stagnating Japanese economy hinders growth at home. As well as expanding in Europe and the rest of Asia, the brokerage is hiring in the U.S., where it is investing 250 billion yen and plans to offer research coverage on 600 companies.

Those efforts have been slow to yield results. The company posted a 14.2 billion yen pretax loss on overseas businesses in the second quarter, led by operations in Europe and Asia, compared with 20.1 billion yen profit from abroad a year earlier, the statement said. Pretax profit in the U.S. fell. Nomura didn’t give further detail on regional businesses.

Trading Profit Slumps

Declines in trading and brokerage fees contributed to Nomura’s earnings slump last quarter. Trading profit slid to 103 billion yen from 148.5 billion yen, the company said. Brokerage commissions dropped to 83.5 billion yen from 95.4 billion yen.

The average daily trading volume on the first section of the Tokyo Stock Exchange fell 15 percent to 1.7 billion shares last quarter from 2 billion shares in the same period last year, according to data compiled by Bloomberg News.

Nomura’s second-quarter profit was worse than the 1.4 billion yen median estimate of eight analysts surveyed by Bloomberg. Nomura fell 3 percent on the Tokyo Stock Exchange before the earnings announcement and touched a 28-year low earlier this month.

“In the second half, we will continue to focus on flow businesses and generating revenues from our investments while maintaining a robust financial position,” Watanabe, 58, said in today’s statement.

‘Top-Tier Bank’

In the late 1980s, Nomura was fleetingly the world’s biggest financial institution -- with a market value of $76 billion on April 17, 1987, 18 times that of Merrill Lynch & Co. -- before embarking on a scandal-plagued, decade-long decline.

“We want to be a top-tier investment bank in the medium term,” Nomura’s Chief Financial Officer Masafumi Nakada said in a press briefing in Tokyo. He said the company has “no plans at all” to sell new shares to increase capital.

Smaller rival Daiwa Securities Group Inc. today posted a loss of 4.2 billion yen for the quarter, its third straight, as brokerage and underwriting fees declined. Nikko Cordial Securities Inc., the investment-banking unit of Sumitomo Mitsui Financial Group Inc., said today that net income slid 75 percent to 5.9 billion yen from a year earlier, when it benefited from a one-time tax gain.

Banking Fees Rise

The bank got a boost from investment-banking fees, which increased to 24.9 billion yen for the quarter from 15.6 billion yen in the same period last year.

Nomura rose in investment-banking rankings in the quarter, jumping to eighth in advising on mergers and acquisitions from 12th a year earlier. The brokerage worked on 40 deals worth $66.3 billion in the period, compared with 36 deals worth $20.3 billion a year earlier, according to data compiled by Bloomberg.

Advisory deals in the period included Prudential Financial Inc.’s purchase of American International Group Inc.’s two Japanese units for $4.8 billion. Nomura was seventh in equity underwriting last quarter, handling 23 deals worth $7 billion, up from 10th a year earlier, when it worked on 11 deals worth $4.1 billion, Bloomberg data show.

Nomura’s earnings for the period compare with net income of 2.3 billion yen in the quarter ended June 30, and 18.4 billion yen of profit in the three months to March 31.

Macquarie, Australia’s biggest investment bank, today recorded a 16 percent drop in profit for the six months ended Sept. 30. Goldman Sachs, the most profitable securities firm in Wall Street history, posted a 40 percent decline in third- quarter profit this month.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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