Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

The glowing second-quarter results from Nomura Holdings Inc. belie a deeper problem. Japan's largest securities firm is losing where it really counts -- at home.

Since acquiring Lehman Brothers Holdings Inc.'s operations in Europe and Asia almost eight years ago, Nomura has been on a mission to turn around its offshore operations. That's been working, thanks in large part to widespread job cuts and a surge in hedging revenues after the Bank of Japan moved into negative interest rate mode and the U.K. voted to leave the European Union.

Japanese Go-Getter
Unusually, all four geographic regions for which Nomura reports made money in the most recent quarter, including Europe, where profit has been elusive
Source: Company reports, CreditSights
Note: Shows pretax profit by region for the quarter ended.

For two consecutive quarters, FICC, or the business of trading fixed-income, currencies, and commodities, has been hot, not just for Nomura but for most of the large Wall Street and European banks. So the rise in Nomura's overseas pretax profit to the highest since at least 2002 makes sense.

But doing well internationally, where it's not anywhere near the No. 1 player in investment banking, equities trading, or even FICC, won't be easy to sustain.

FICC is a volatile business. For the three months ended Sept. 30, FICC revenue came in at 99.6 billion yen ($947 million), up 20 percent over the same period last year but down about 8 percent from the first quarter. Nomura's FICC gains also aren't as good when compared with the likes of Morgan Stanley, which ironically has been cutting back in that area, Goldman Sachs Group Inc. and JPMorgan Chase & Co.

What Goes Up
Revenue from fixed-income, currencies and commodities trading has soared but it's a volatile business
Source: Nomura company filings

Meanwhile, the picture on the home front looks increasingly bad.

Retail investors once formed the cornerstone of Nomura's business. In the most recent quarter, however, pretax income for retail slumped 61 percent to 14.4 billion yen. Wholesale's contribution of 39.3 billion yen was up almost fivefold on the same period last year, demonstrating that company clients, many of whom are overseas, are overshadowing all those Japanese individuals who were once Nomura's bread and butter.

Having a Domestic
Negative interest rates in Japan plus the Brexit vote in Europe has helped buoy wholesale while pretax income from retail has slumped
Source:Company filings

Nomura said retail investors are in "wait-and-see mode," meaning essentially they're loath to trade stocks and bonds -- the Nikkei 225 Stock Average is down almost 9 percent this year. While the business saw some improvement from the first quarter in terms of earnings, revenue gains were tiny. Japan's top brokerage is also facing increased competition from the country's megabanks such as Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. that have a ready-made customer base to which they can sell securities.

Making matters worse, Nomura's other big business, asset management, is suffering, even as yield-hungry investors have piled into emerging markets and speculative-grade notes.

This latest set of numbers shows Nomura can do well overseas if it really tries. But gains could be ephemeral, dependent as they are on global events.

The bigger challenge is keeping its No. 1 brokerage status at home and enticing all those retail investors back onto the playing field. The recent Line Corp. initial public offering it helped underwrite is a good example of the kind of deals the firm can bring to the table.

Having fixed things offshore, Nomura needs to zoom back in on what truly matters.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at