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Nomura Profit Falls Less Than Expected on Investment Banking

Nomura Holdings Inc. Chief Executive Officer Koji Nagai
Koji Nagai, chief executive officer of Nomura Holdings Inc. Nagai is seeking to expand assets under management in the retail unit and attract new investors rather than focus on commissions based on transaction volume. Photographer: Tomohiro Ohsumi/Bloomberg

Nomura Holdings Inc.’s fourth-quarter profit fell less than analysts estimated as higher income from investment-banking fees and trading helped to make up for a drop in brokerage commissions.

Net income declined 26 percent to 61.3 billion yen ($598 million) in the three months ended March 31, from 82.4 billion yen a year earlier, Japan’s biggest securities firm said in a statement today. That beat the 41 billion-yen average estimate of 11 analysts surveyed by Bloomberg.

The first profit drop in seven quarters came as Japanese stocks went from being the best performers among major markets in 2013 to the worst this year, weakening Nomura’s domestic brokerage operations. Chief Financial Officer Shigesuke Kashiwagi told reporters it will “take considerable time” to boost fee income from managing individuals’ investments as it shifts from a business model centered on trading commissions.

“The slowdown in Japan business was compensated for by overseas operations, including trading in the U.S., and sales of shares it owned,” Koichi Niwa, an analyst at SMBC Nikko Securities Inc., said by phone. “As long as the market conditions aren’t good, Nomura may have to prepare for further declines in stock-related fees in the future.”

Revenue Drops

Quarterly revenue fell 37 percent from a year earlier to 450.8 billion yen, today’s report showed. Brokerage commissions declined 29 percent to 89.9 billion yen.

Investment banking fee income climbed 24 percent to 27.2 billion yen, and trading profit increased 21 percent to 129.2 billion yen. The Tokyo-based firm posted a pretax profit from overseas operations of 15.9 billion yen, compared with a loss of 42 billion yen a year earlier.

Full-year net income rose 99 percent to 213.6 billion yen, the highest in eight years. Nomura will spend as much as 70 billion yen to buy back shares, it said. It will also pay a 17 yen-a-share dividend for the year, up from 8 yen a year earlier.

The Topix index of shares slid 7.6 percent last quarter as optimism about Prime Minister Shinzo Abe’s economic stimulus policies waned and concerns mounted that an April sales-tax increase would hamper the recovery. Brokerages, whose shares surged 87 percent in 2013, became the worst-performing industry group on the benchmark this year, with Nomura and Daiwa Securities Group Inc. both losing 27 percent.

Daiwa, Japan’s second-biggest securities firm, today posted its first profit decline in nine quarters as underwriting, trading and brokerage commissions fell. Net income slid 32 percent to 33.2 billion yen, in line with the 33 billion-yen average estimate of seven analysts. Daiwa’s profit more than doubled to 169.5 billion yen for the year ended March.

Asset Goal

Nomura Chief Executive Officer Koji Nagai wants to increase retail assets under management to 100 trillion yen by March 2016, having achieved an earlier target of 90 trillion yen last year. As part of the goal, the firm held seminars last quarter to broaden its client base and attract investors such as women and younger people.

“This year, we have to break away from the past to establish a new business model by accelerating the pace of reform of our retail brokerage business,” Nagai, 55, said to the firm’s executives at a New Year ceremony on Jan. 6 in Tokyo, according to Kenji Yamashita, a Tokyo-based spokesman.

The firm’s more than 7,000 retail brokers also spent time consulting with people who opened investment accounts under a Japanese government tax incentive program aimed at getting investors to move savings to stocks. Nomura clients set up 1.17 million accounts under the Nippon Individual Savings Account, or NISA, initiative that started in January.

Taking Time

“In January, Nomura shifted to a business of consulting with investors to build their long-term holdings, and it’s taking time for sales reps to respond,” Masao Muraki, an analyst at Deutsche Securities Inc. in Tokyo, said before the results. “Investment trust sales have slowed significantly.”

In investment banking, Nomura was the top-ranked arranger of Japanese share sales for a fourth straight quarter, data compiled by Bloomberg show. The firm was a joint lead manager for the initial public offering of Seibu Holdings Inc., which listed on the Tokyo Stock Exchange on April 23.

Japan Post Holdings Co. hired Nomura as an adviser as the government prepares for an IPO of the country’s biggest repository of savings next year. Skylark Co., a Japanese restaurant operator controlled by Bain Capital LLC, is working with Nomura and others to prepare for an IPO later this year, two people with knowledge of the matter said in January.

Nomura was No. 4 adviser for mergers and acquisitions involving Japanese companies in the quarter, working on deals valued at $6.8 billion, up from $3.5 billion a year earlier.

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