Nomura Profit Triples to Seven-Year High on Investment Banking

Nomura Holdings Inc.’s quarterly profit more than tripled to the highest in seven years, beating analysts’ estimates as investment banking fees and brokerage commissions surged.

Net income rose to 82.4 billion yen ($835 million) for the three months ended March 31 from 22.1 billion a year earlier, Japan’s biggest brokerage said yesterday. The result exceeded the 56 billion yen average estimate of nine analysts.

Prime Minister Shinzo Abe’s push to end deflation and stimulate the economy has spurred Japanese equities and weakened the yen, improving prospects for domestic securities firms. Stock trading volume has boosted brokerage fee income and investment banking is picking up, with Japanese stock offerings tripling to 1.7 trillion yen so far this year.

“The headlines show just how positive the impact of the market rally has been,” said Mac Salman, an analyst at Jefferies Group LLC in Tokyo, keeping his buy rating on the stock. “We see earnings improving in line with our positive market view.”

Shares of Tokyo-based Nomura closed 0.7 percent lower at 762 yen before the announcement and have climbed 51 percent this year. The Topix Index dropped 1 percent as the Bank of Japan refrained from expanding monetary easing, paring its gain in 2013 to 35 percent, still the best among major global markets.

Raises Dividend

The Japanese bank said it will buy back as much as 1.1 percent of its shares for 35 billion yen next month to allow stock options to be exercised. It tripled its dividend for the fiscal second half to 6 yen from 2 yen.

Chief Executive Officer Koji Nagai, 54, last month named Shigesuke Kashiwagi as chief financial officer to implement a $1 billion cost-reduction plan and sustain a profit recovery as markets rally. Nagai became CEO in August after predecessor Kenichi Watanabe resigned following revelations that staff leaked non-public information on share sales the firm managed.

Revenue climbed 27 percent last quarter from a year earlier to 720.1 billion yen, yesterday’s report showed. Brokerage commissions jumped 39 percent to 125.7 billion yen. Investment banking fees rose 47 percent to 21.8 billion yen. Trading profit increased 7.7 percent to 106.5 billion yen.

“The market advance has improved Nomura’s retail businesses on stock broking and mutual fund sales,” Azuma Ohno, a Tokyo-based analyst at Barclays Plc, said before the results. “The question now is whether the pickup will last, given that trading volume has already neared a 10-year peak.”

Daiwa Profit

Daiwa Securities Group Inc., the country’s second-biggest brokerage, may report 25 billion yen quarterly profit on May 1, the most in three years, according to the average of analysts’ estimates compiled by Bloomberg.

U.S. banks earlier this month also reported improved earnings, helped by cost reductions. Bank of America Corp. and JPMorgan Chase & Co. led the country’s six largest banks in boosting combined first-quarter profit 45 percent.

Credit Suisse Group AG, Switzerland’s second-biggest bank, said on April 24 it almost tripled quarterly profit on lower costs and improved earnings at its investment bank.

Former CFO Junko Nakagawa said in January that she expects investment banking to recover this year as the stock rally lures companies to capital markets. The business had weighed on a revival in profit growth at Nomura after it lost some bond and equity deals following last year’s insider-trading scandal.

Top Underwriter

Nomura regained the top spot in Japan’s bond underwriter rankings in the quarter, after mobilizing its 177-branch retail network to help Softbank Corp. sell 210 billion yen of debt. It won 29 percent of the market, the most since 2008, including self-led issues, data compiled by Bloomberg show.

The brokerage slipped to second in Japanese equity sales from a year earlier, trailing Daiwa. It was No. 2 in mergers and acquisitions advisory, the data show.

Nomura continued to struggle abroad last quarter. Its pretax loss from overseas widened to 42 billion yen from 24.6 billion yen a year earlier. In Europe, it lost 36.5 billion yen before taxes, while the U.S. made a 2.3 billion yen profit. Asia, the region abroad where Nomura is seeking to concentrate, lost 7.9 billion yen.

“Competition in Asia is very hard as there are many rivals, and it takes time to create a franchise,” CFO Kashiwagi said at a news briefing in Tokyo. “We see some cross-border deals and got some IPO mandates in the region. We will keep working with a long-term outlook.”

Europe Cuts

Nomura will continue to cut costs and improve profitability in Europe, Kashiwagi said later on a call with analysts. The region has borne the brunt of Nagai’s expense reductions, reducing headcount by 129 over the three months. Jeremy Bennett was named CEO for Europe, the Middle East and Africa this month, replacing John Phizackerley.

Kashiwagi also spoke about Nomura’s involvement in a probe into whether derivatives it arranged for Banca Monte dei Paschi di Siena SpA were intended to hide losses at the Italian bank. Italian prosecutors have attempted to seize more than 1.8 billion euros ($2.3 billion) of assets pledged by Monte Paschi from Nomura accounts in Germany, Italy and the U.K.

None of the assets in Germany or at Nomura’s Milan branch have been seized, while Italian prosecutors ordered a freeze on a small amount of cash and some receivables in Italy, Kashiwagi said. Nomura takes the matter “very seriously” and will take “all appropriate steps” to protect stakeholders, he said.

Before it's here, it's on the Bloomberg Terminal.