Train-Hopping Nomura Broker Chases Appetite for StocksTakahiko Hyuga
The best-performing stock market of the developed world this year is keeping Japanese brokers like Kensuke Ueda running. Literally.
Dodging pedestrians and hopping subway trains as he dashes from one client meeting to the next, the 31-year-old employee of Nomura Holdings Inc. bounds up stairs two at a time -- all while taking stock orders on the phone. Wondering if he has time for lunch, he glances at his Zenith El Primero watch, whose name in Spanish translates as “the first” and keeps time to the nearest 10th of a second. He decides he doesn’t.
“I wanted to be No. 1, so...” says Ueda, one of Nomura’s top retail brokers, giving a rare smile while explaining why he bought the timepiece, which retails for $6,500 to $10,000.
For Ueda and his peers at firms including Daiwa Securities Group Inc. and Mitsubishi UFJ Financial Group Inc.’s venture with Morgan Stanley, business has gotten better since Shinzo Abe became prime minister last December and ushered in policies that sent the Topix Index of stocks up 37 percent this year.
“The domestic retail and commercial bankers are Nomura’s core strength,” said William Overholt, who worked for Ueda’s firm including as chief regional strategist in Hong Kong from 1998 to 2001 and is now a senior fellow at Harvard University’s Asia Center in Cambridge, Massachusetts. “They are superb professionals, they have an entrenched market position, and they provide reliable income regardless of global economic cycles.”
Nomura, Japan’s biggest brokerage, reported last week that six-month pretax profit from its retail business surged more than fivefold from a year earlier to 121.1 billion yen ($1.2 billion), accounting for 65 percent of earnings before taxes. Daiwa said profit from retail operations more than quadrupled to 58.9 billion yen in the six months ended September.
Global firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. are largely absent from Japan’s brokerage market and instead concentrate on equity underwriting, mergers advice and trading. New York-based Morgan Stanley’s venture with Mitsubishi UFJ was the fourth-biggest brokerage in Japan by revenue in the six months through September, behind Nomura, Daiwa and SMBC Nikko Securities Inc.
At Nomura, the profit contribution from the domestic retail business underscores its importance five years after the firm’s ill-fated purchase of Lehman Brothers Holdings Inc.’s European and Asian operations. When the company’s global expansion faltered as losses abroad mounted, Ueda and his 7,000 fellow retail brokers helped prop up earnings by pounding the pavement and picking up the telephone to sell stocks, bonds and investment trusts.
While this year’s stock rebound has lost some steam since peaking in May, Ueda says Japanese companies’ growing profitability means opportunities for investors to take risks. The Topix, which reached a 4 1/2-year high on May 22, has since slid 7.8 percent amid concern that a planned sales-tax rise will slow the momentum of the world’s third-largest economy.
“It’s totally different from a year ago,” says Ueda, a vice president for wealth management who arranges stock purchases mostly for high-net-worth individuals. “Some clients who hadn’t traded for a long time are talking with us to place orders. Others who had no intention to invest are now listening to our proposals with interest.”
Nomura’s Chief Executive Officer Koji Nagai has already exceeded by three years the goal he set in September 2012, a month after he was appointed, of retail assets under management exceeding 90 trillion yen. He has since raised the target to 100 trillion yen by March 2016.
That kind of growth is what keeps Ueda, a man so busy that his lower desk drawer bears the smudge of his foot from being kicked shut instead of carefully closed, on the phone and running from meeting to meeting.
On a sunny morning in September, Ueda’s day begins at his cramped office in the Shinjuku Nomura Building branch, which caters to individual investors.
He checks market moves on his two computer terminals, surrounded by scraps of paper bearing quotes and slogans. One of them, by 19th-century English poet Martin Farquhar Tupper, reads, “Well-timed silence hath more eloquence than speech.” It’s apt for Ueda, a man of few words.
He maps out his journey for the day and hits the streets, shunning taxis for trains, which he says are cheaper and more reliable. Over the next eight hours, he makes 31 phone calls and visits six clients in 86-degree heat, never removing the jacket of his blue, bespoke Dormeuil-cloth suit with a Nomura pin on the lapel bearing the company’s “ivied mountain” emblem.
Walking through an underground passage toward Shinjuku Station, the nation’s busiest train hub, Ueda takes a call from a client interested in buying shares in Japan Airlines Co. and in medical-products maker 3-D Matrix Ltd., based on his previous recommendations.
“I’ll get right back to you,” the broker says.
He promptly calls his colleagues to arrange the deal for the client, who Ueda asked not be identified for confidentiality reasons, while adding that the person hadn’t invested in the stock market since the 2008 global financial crisis.
The sale of 10,000 shares in each company is completed the next morning, valuing the transaction at more than $900,000, according to data compiled by Bloomberg.
“I feel great pressure,” Ueda says. “My stocks must outperform.”
Ueda joined Nomura in 2005 and has regularly ranked in the top five of the 180 brokers who also entered that year, based on criteria including revenue and purchase orders, according to company spokesman Kenji Yamashita. He received an award from the CEO for his performance in 2010, a year in which Japanese stocks fell and the volume of trading slumped.
“Clients will never buy products that I’m not 100 percent sure about,” he says.
Ueda, who grew up in Tokyo and is single, likes to relieve stress by swimming at the public pool near his apartment in the city’s central Nihonbashi district.
He says his success stems from a past failure that still gives him nightmares. When he was team captain in kyudo, the traditional archery martial art, at the prestigious Keio Senior High School in Tokyo, he missed a shot that prevented him and his fellow archers from progressing to the national championship. He says he was underprepared, a mistake he vowed not to let happen again. Four years later, at Keio University, he became the country’s college champion.
While preparation has helped Ueda, so has Japan’s stock market rally. The broker has changed the way he proposes investments now that households hoarding cash during 15 years of deflation are becoming more open to taking risks.
“I used to begin by talking about tax and inheritance,” he says. “Now I’ll start talking about stocks directly.”
Households boosted holdings of shares and other equities to 8.1 percent of their almost 1.6 quadrillion yen in financial assets as of June 30, the biggest portion in 5 1/2 years, Bank of Japan data show. That’s higher than the 6.8 percent when Abe came to office six months earlier on a pledge to spur the economy with his so-called three arrows of fiscal spending, monetary easing and business deregulation.
Japanese still hold about 54 percent of their financial assets in cash as price declines protect the value of savings and reduce incentives to increase returns. Abe’s efforts to spark inflation will spur a move toward riskier investments, Mac Salman, an analyst at Jefferies Group LLC in Tokyo, wrote in an Oct. 23 research note.
“We believe that household assets will shift from cash to equities” due to a new Abe initiative offering tax breaks on capital gains and dividends from stocks, he wrote.
The Nippon Individual Savings Account program will pump as much as 68 trillion yen into stocks through 2018, Nomura’s research arm estimates. That would be a 53 percent increase on the 128.8 trillion yen households held in stocks at the end of June, according to calculations based on central bank data.
“Encouraging the effective use of the country’s 1,500 trillion yen of household financial assets is a key to Japan’s future growth,” Nomura CEO Nagai wrote in an e-mail to Bloomberg News, calling the new plan “a catalyst.” His company had received 1 million applications to open accounts under the program as of Sept. 30.
Still, enthusiasm for Abe’s policies may be showing signs of waning as the prime minister prepares to raise the sales tax in April to 8 percent from 5 percent to contain a public debt burden that’s more than twice gross domestic product. Investors are also waiting to see whether he delivers on his promise to remove impediments to Japan’s competitiveness.
“As long as Abe’s stimulus policies create growth, the markets and the banks will benefit,” said Harvard’s Overholt. “But ultimately the third arrow, structural reform, will decide whether Japan achieves sustained growth or catastrophic financial collapse. So far, the third arrow seems to need a little Viagra.”
Whatever the outcome, Ueda is taking each day as it comes. One evening in October 2010, he was rushed to the hospital after collapsing outside a train station in Osaka. Doctors told him he had brain cancer -- a diagnosis that turned out to be wrong, Ueda says. Instead, he had a type of blood clot that has since disappeared.
“I don’t want to be obsessed by rewards in the future or failures of the past,” he says. “I want to focus on the moment.”