Nomura Drops to Pre-Abenomics Level as Japan's Brokers Slump

  • Daiwa and Nomura have fallen for eight days amid global rout
  • Could be a buying opportunity as fundamentals intact: analyst

It’s as if Abenomics never happened for Japan’s biggest brokerages.

Nomura Holdings Inc. and Daiwa Securities Group Inc. fell for an eighth straight day in Tokyo as the deepening stock-market rout continues to pummel investment banks around the world.

Nomura is now trading below its price when Shinzo Abe became prime minister in December 2012, ushering in an economic-stimulus policy that sparked a stock-market rally and a profit rebound at Japan’s largest securities firm. The selloff may be overdone because brokerages remain stronger than they were before the Abe administration, according to SBI Securities Co. analyst Nobuyuki Fujimoto.

“Their fundamentals haven’t deteriorated that much,” Fujimoto said by phone. “The tide will turn as overseas investors in particular decide whether their profitability is really worse than it was before Abenomics.”

Shares of Tokyo-based Nomura closed 9.2 percent lower Friday, extending their decline to 33 percent since the company posted worse-than-estimated earnings on Feb. 2. At 446.6 yen, the price is the lowest since Dec. 21, 2012.

Daiwa dropped 8.2 percent to 591.1 yen, the weakest since the month before Bank of Japan Governor Haruhiko Kuroda unveiled his first round of monetary easing in April 2013. An index of securities firms was the third-worst performer on the benchmark Topix, which slumped 5.4 percent.

Buyback Talk

Investors continued dumping Nomura shares even after Chief Executive Officer Koji Nagai said this week that the company is considering buying back stock while it’s cheap.

“The brokerage must also be advising Japanese firms to consider share buybacks, if the CEO’s remarks are any guide,” said Fujimoto. “I wouldn’t be surprised to see companies start announcing such plans soon, which will be beneficial to brokerages.”

Nomura has announced five share buybacks since May 2013, including two last year. The company is now trading at 0.57 times the book value of its assets, the cheapest since November 2012, according to data compiled by Bloomberg. Daiwa has a price-to-book ratio of 0.80.

“We’re considering returning profit appropriately” to shareholders, Nagai said in an interview on Tuesday. “There’s no doubt that it’s better for us to do it when they’re cheap,” he said, declining to comment on the timing and size of any buyback.

Negative Rates

Since 2013, BOJ Governor Haruhiko Kuroda’s quantitative-easing policy weakened the yen and spurred a rise in Japanese equities that bolstered brokerage commissions and investment-banking fees. Yet the latest round of easing on Jan. 29 involved the introduction of negative interest rates, which has hammered Japanese bank stocks and failed to stop the currency from surging to a 15-month high.

The cost to insure Nomura’s debt against nonpayment climbed to the highest in almost a year Thursday, while credit default swaps for Daiwa reached an almost two year-high earlier this week, according to data provider CMA.

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