lean and mean

Nomura's Overseas Revival Has Legs

After six years of struggle, the Japanese brokerage is leaner and more focused.
At Closing, April 20th
636.90 JPY

Nomura Holdings Inc. has finally turned its international foray into a success.

The Japanese brokerage's first full year of overseas profit in seven years is a milestone in its struggle to build a global investment bank from the ashes of Lehman Brothers Holdings Inc.'s European and Asian operations. Nomura is leaner and more focused than the last time it showed positive earnings from abroad, suggesting the gains will be easier to sustain this time -- provided it goes easy on a mooted U.S. expansion.

The surge in fixed-income trading that's powered Wall Street peers helped lift Japan's top broker, which also benefited from the elimination of 900 jobs. Pretax profit at its international operations was 88.1 billion yen ($792 million) last fiscal year, compared with a 79.6 billion yen loss a year earlier. Nomura's net income for the fourth quarter ended March 31 reached 61.3 billion yen, rebounding from a 19.2 billion yen loss in the year-earlier period.

Things remain less cheery at home. Retail earnings, primarily domestic and once the cornerstone of its business, fell. Nomura said retail investors remained in "wait-and-see mode" due to uncertain markets. Even in a country with negative interest rates, bank accounts remain more popular than stocks and bonds.

Overseas Bump

Nomura's pretax income from wholesale banking overtook retail as the top earnings driver last year

Source: Nomura filing

*Nomura's wholesale business includes fixed income and equities trading as well as investment banking.

The Japanese company has had a history of flip-flopping over its international operations, as Moody's Investors Service noted in a report Monday. The ratings agency said that Nomura's plan to hire more M&A bankers in the U.S. -- an intention reiterated by Chief Financial Officer Takumi Kitamura Thursday -- was "credit negative" because it increased the risk of potentially large losses.  The company added 35 people in the Americas in the January-March quarter, while headcount fell by 37 in Europe.

The U.S. hiring plan comes less than a year after Nomura closed most of its equity business in Europe, the Middle East and Africa, calling time on a post-financial crisis build-out that was driven by its Lehman purchase.

America First

Nomura's wholesale net revenue from the Americas rose compared with last year

Source: Nomura filing

Note: Nomura's fiscal year ends March 31. Data show net wholesale revenue per region.

There should be little risk of Nomura repeating its over-expansion mistakes of the past. There's a limit to how many dealmakers you can hire and there's no doubt the brokerage needs more investment bankers as Japan's cash-rich but growth-poor companies scout for acquisition targets in the U.S.

A rise in U.S. debt sales this year also has translated into record activity among investment-grade bonds, which should continue for a while yet.

As long as it takes a measured approach, Nomura's foreign revival has legs.

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 ngopalan3@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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