Nomura Jumps Most Since 2008 on Buyback, Overseas Profit Rebound

  • Shares extended gains after BOJ decided to expand stimulus
  • Fixed-income rebound offset domestic brokerage business slump

Nomura Holdings Inc.’s embattled investors have something to cheer about after Japan’s biggest brokerage unveiled plans to buy back more shares and posted its biggest overseas quarterly profit in seven years.

Shares of Nomura jumped 13 percent, the most since December 2008, at the close of trading in Tokyo Friday. The stock extended gains after the Bank of Japan expanded its stimulus program. The Tokyo-based securities firm will purchase up to 2.6 percent of its stock for as much as 45 billion yen ($430 million), it said Thursday after reporting first-quarter net income that fell less than analysts estimated. 

Nomura’s first quarterly profit abroad in a year and a boost in fixed-income trading helped to temper a slump in its domestic brokerage business. That provides some solace to shareholders who saw the stock plunge 39 percent this year to Thursday after overseas losses mounted and results at home began to falter as negative interest rates and a surging yen kept individual investors on the sidelines.

The decision to buy back shares was “well-balanced” since Nomura is trading at just over half the book value of its assets, said Koichi Niwa, a senior analyst at SMBC Nikko Securities Inc. “The global market became accustomed to negative rates, and its fixed-income businesses returned to form. But we don’t know whether that’s sustainable.”

Net income declined 32 percent from a year earlier to 46.8 billion yen in the three months ended June 30, Nomura said. That beat the 14.3 billion yen average estimate of five analysts surveyed by Bloomberg. Overseas pretax profit increased to 16.9 billion yen from 2.7 billion yen a year earlier.

Chief Executive Officer Koji Nagai has been cutting costs abroad to halt six straight years of losses outside of Japan. In April, the firm said it will restructure its European equity business and trim operations in the U.S. -- efforts that Nagai expects will save about $700 million of costs. The company may follow a trend for banks to trim bonuses, Chief Financial Officer Takumi Kitamura told analysts on a conference call Thursday.

“It appears the removal of overseas cost, always hard to read given disclosure and communication, has had a positive effect on profits,” said Mac Salman, head of research on Japanese financial firms at Jefferies Group LLC in Tokyo.

The Bank of Japan expanded its purchases of exchange-traded funds and doubled the size of a U.S. dollar lending program, while refraining from boosting the pace of government-bond purchases that have formed the main part of its monetary stimulus. It also refrained from deepening negative rates, triggering a surge in bank stocks.

The Topix Banks Index of shares jumped 6.9 percent, the most since February. An index of securities firms climbed 6.1 percent, also the biggest gain in five months, and the benchmark Topix closed 1.2 percent higher.

For more on the BOJ’s decision, click here.

Nomura’s fixed-income revenue rose due to “an uptick in client activity and improved trading conditions,” it said in its results presentation. Profit before taxes at its retail operations fell 83 percent as “choppy market conditions” kept investors away, it said.

It’s difficult to predict whether the rebound in fixed income can be maintained given the volatility in financial markets, according to CFO Kitamura. He also said that he has no “magic wand” to boost business at home.

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