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.

(Updated )

Nomura Holdings Inc. may be ruing its international presence right now. It shouldn't.

Low volatility -- the bane of global investment banks -- caused a slump in fixed-income trading in the three months through September, driving Japan's biggest brokerage to its first profit decline in five quarters. Net income slid 15 percent to 51.9 billion yen ($457 million), with huge gains in Nomura's largely domestic brokerage operations and global fund management businesses unable to offset the collapse in trading. The shares fell as much as 3.7 percent in early trading Tuesday.

Pretax profit from Nomura's largely domestic retail business surged but investment banking slumped
Source: Company filings
Note: Wholesale operations are largely overseas businesses, including Lehman Brothers, which Nomura bought after the financial crisis.

The contrast with Daiwa Securities Group Inc., Nomura's less internationally exposed rival, couldn't be starker. Daiwa's second-quarter profit rose to the highest in two years on the back of booming underwriting and brokerage commissions.

Like Daiwa, Nomura was a key arranger of the $11.6 billion share sale by Japan Post Holdings Co. last month, a transaction that completed the nation's biggest public offering this century. While such deals helped Nomura's investment banking fees rise 16 percent in the quarter, they weren't enough to shield it from the global fixed-income trading malaise.

Hold the pessimism, though. Having scaled back since its 2008 acquisition of the Asian and European rump of Lehman Brothers Holdings Inc., Nomura is on the right track.

The brokerage's strategy of continuing to bulk up in investment banking, which requires fewer but costlier people, makes sense. Japan's cash-rich companies need to expand overseas to grow, and Nomura is well placed to advise them. Indeed, the firm has benefited from being an acquirer itself. Nomura bought 41 percent of U.S. money manager American Century Investments in 2015; that asset helped it post higher asset management revenues last quarter.  

At the same time, the brokerage, which stepped back from European cash equities last year, could do with reducing its swathe of expensive traders.

Nomura and Daiwa shares have been underperforming the Topix this year
Source: Bloomberg

What's kept shares of Nomura and other Japanese banks broadly underperforming has been investors' general distaste for the country's financial companies, which have been tainted by their exposure to a margin-eroding negative interest rate policy. 

With Japan's stock market rally now in full gear after Prime Minister Shinzo Abe's re-election, foreigners just returning to the market are likely to favor doing business with the country's largest brokerage.

Emerging Flows
Foreign investment in Japanese stocks has started picking up though remains well off its 2013 highs
Source: Bloomberg

Nomura's retail business, which posted its worst earnings in five years in the 12 months through March, is also firmly on the up, with net income increasing for a second consecutive quarter. The firm announced a first-half dividend of 9 yen per share and an unexpected buyback program of 50 billion yen.

This quarter was an aberration rather than the trend.

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

(Updates with Tuesday's share trading in the second paragraph.)

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

To contact the editor responsible for this story:
Matthew Brooker at