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Nomura Sees Momentum in Stock Underwriting, Retail Demand

Nomura Holdings Inc. (8604), Japan’s biggest securities firm, expects the recovery at its retail brokerage and equity underwriting businesses will stretch into this quarter as corporate and investor sentiment improves.

“We have mid-sized deals in our pipeline,” Chief Financial Officer Shigesuke Kashiwagi said yesterday in Tokyo after the bank posted a fourth straight quarter of year-on-year profit growth. “I think we’ll be able to maintain momentum.”

Japan’s stocks are the best performers among major developed markets this year, boosting Nomura’s brokerage commissions and fees from managing share sales for companies including Suntory Beverage & Food Ltd. (2587) Net revenue from retail operations doubled last quarter to the highest in 11 years as Japanese anticipating an end to deflation shifted savings into riskier investments.

“It makes sense for Japanese corporates to raise funds and spend them on equipment today rather than tomorrow if the economy is moving toward inflation,” said Shiro Yoshioka, an analyst at Japaninvest Group Plc (3827) who rates Nomura a buy. “And it’s reasonable for retail investors to opt for equities rather than keep their money in deposits with fixed interest rates.”

Photographer: Akio Kon/Bloomberg

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo. Nomura managed Suntory Beverage & Food Ltd.’s global initial public offering last quarter, which at almost $4 billion is Asia’s biggest this year. Close

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo. Nomura managed... Read More

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Photographer: Akio Kon/Bloomberg

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo. Nomura managed Suntory Beverage & Food Ltd.’s global initial public offering last quarter, which at almost $4 billion is Asia’s biggest this year.

Net income surged to 65.9 billion yen ($668 million) for the three months ended June 30 from 1.9 billion yen a year earlier, in line with analysts’ estimates, Nomura’s earnings report showed yesterday.

Brokerage commissions doubled to 157.6 billion yen. Net revenue from retail operations rose to 166.3 billion yen, the highest since Tokyo-based Nomura began keeping quarterly records in the year ended March 2002.

Abe Rally

The benchmark Topix Index (TPX) of shares has gained 36 percent this year on the back of Prime Minister Shinzo Abe’s drive to end deflation with fiscal and monetary stimulus combined with deregulation. Securities stocks led the rally, with Nomura climbing 56 percent, as demand for brokerage services increased.

Kashiwagi, 53, said individual investors have been buying stocks, mutual funds, emerging-market bonds and high-yield notes since June because securities became cheap after a selloff the previous month. “The momentum is continuing in July,” he said.

Japanese, who hoarded cash during 15 years of deflation, are beginning to shift to riskier assets. Households boosted their holdings of stocks and other equities by 17 percent in the quarter ended March from a year earlier to 124 trillion yen, the highest since December 2007, Bank of Japan data show. Consumer prices (JNCPIXFF) rose 0.4 percent in June from a year earlier, the most since 2008, government figures showed yesterday.

Fortunes Turn

Nomura’s fortunes have turned around in the past 12 months. A year ago, the company reported an 89 percent plunge in quarterly net income and then-Chief Executive Officer Kenichi Watanabe and his top lieutenant resigned after staff leaked information used for insider trading. The scandal cost the bank some debt and equity underwriting business.

Watanabe’s replacement, 54-year-old Koji Nagai, is cutting $1 billion of costs to sustain the earnings rebound and become profitable abroad. Pretax loss from overseas operations widened 13 percent last quarter from a year earlier to 13.7 billion yen because of the weaker yen and costs related to staff retirements, the bank said.

Investment banking fees more than doubled to 25.4 billion yen as Japanese companies sold shares and bonds to raise funds. The nation’s large manufacturers turned optimistic in June for the first time since 2011, the Bank of Japan’s Tankan (JNTSMFG) survey showed this month.

Nomura was the No. 1 underwriter of Japanese equity sales last quarter, managing offerings valued at 263.4 billion yen, more than eight times higher than a year earlier, data compiled by Bloomberg show. While the company isn’t working on deals as large as Suntory’s almost $4 billion initial public offering, according to Kashiwagi, it has managed six sales in July, including by Dentsu Inc. (4324) and Sumitomo Forestry Co. (1911)

“A strong equity capital market will be the earnings driver for the second quarter,” said Katsunori Tanaka, a Tokyo-based analyst at Goldman Sachs Group Inc. “We’ve already seen several deals in Japan since the start of July, and corporate sentiment and activities have been rising.”

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

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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