Nomura Emulates Morgan Stanley by Offering Loans to ClientsTakahiko Hyuga
Nomura Holdings Inc., Japan’s biggest independent securities firm, is emulating Morgan Stanley by urging brokers to offer loans and gather deposits as it faces growing competition from the country’s largest lenders.
The company plans to more than double loans to individuals in five years, said Naoshi Sakai, executive director of banking and trust agency services at Nomura. It’s considering offering brokerage and lending services together to new clients from around August in a package that would require them to open deposit accounts, he said in an interview in Tokyo on June 10.
“To survive as a financial institution, we have to break the boundary between deposits and investments,” Sakai said.
The move echoes efforts by Morgan Stanley, whose stock jumped 64 percent last year as the New York-based firm helped improve brokerage profit margins by lending to individuals. Nomura and Daiwa Securities Group Inc. have lost ground to banks that are winning deals for mergers advice and debt underwriting and tapping their brokerage arms to invest savers’ cash.
“Pursuing a business model like Morgan Stanley’s is a legitimate move for Nomura because it would help to bring in stable revenue” such as interest income, said Masao Muraki, a Tokyo-based analyst at Deutsche Bank AG. “It’s reasonable for Nomura to offer banking services that make the most of its brokerage client network.”
Nomura had 1.1 trillion yen ($10.8 billion) in deposits as of March, making up 2.7 percent of liabilities, up from 1.6 percent six years earlier. Morgan Stanley had $117 billion in deposits at the end of March, swelling to 15 percent of liabilities from 3 percent at the end of 2007.
Tokyo-based Nomura’s loans secured by clients’ investments will climb to 250 billion yen by 2019 from 107 billion yen as of May 31, Sakai, 44, said. The firm doesn’t have a specific target for its expansion of individual customers’ deposits, which are held at its trust banking unit, he said.
The program, which started in 2008, lets customers obtain quick credit to pay for anything ranging from cars and property to luxury cruises and children’s tuition, Sakai said. Clients can borrow as much as 100 million yen against their holdings of stocks and bonds at an interest rate of 2.975 percent.
“We’ve got to have all kinds of services as Japanese individuals have 1,600 trillion yen of financial assets and they want to line up all the choices on the table -- savings, stocks and bonds,” Sakai said.
Nomura’s loans to individuals grew about 34 percent on average each year since March 2008, according to Bloomberg calculations based on company data.
Morgan Stanley has been accumulating deposits since it became a bank holding company at the height of the financial crisis in 2008. Its purchase of brokerage Smith Barney from Citigroup Inc. will increase deposits to $140 billion by the middle of next year, up from $28 billion in 2006, Chief Executive Officer James Gorman said in a June 10 presentation.
Morgan Stanley has also pledged to boost lending to its individual clients. It plans to triple so-called portfolio loan accounts, which are credit lines backed by brokerage account assets, from 2012 levels by 2015, Chief Financial Officer Ruth Porat said in a September presentation.
Offering loans backed by investments gives clients an incentive to keep their portfolios with Nomura, Sakai said. That’s in line with Chief Executive Officer Koji Nagai’s strategy to focus less on trading securities for individuals and more on managing their assets. Nagai wants to expand retail assets under management to 100 trillion yen by March 2016, after achieving an earlier target of 90 trillion yen last year.
Shares of Nomura rose 1.8 percent to 741 yen at the close of trading in Tokyo. They have fallen 8.4 percent this year, after jumping 61 percent in 2013 when a Japanese equity market rally fueled brokerage commissions that drove earnings growth.
Banks and brokers are counting on Prime Minister Shinzo Abe’s economic policies to lead more people to buy stocks and bonds. Japanese households held more than half of their 1,630 trillion yen of financial assets in cash at the end of March, with just 9.1 percent in stocks, Bank of Japan data show.
Mitsubishi UFJ Financial Group Inc., Japan’s largest lender, dispatched more than 650 salespeople from its brokerage venture with Morgan Stanley to its main banking unit to urge depositors to transfer some of their savings to securities investments.
“We want to visit all our customers’ living rooms to advise them on forming portfolios that match their stage in life,” Takashi Nagaoka, who will move from the lending unit to become CEO of Mitsubishi UFJ Morgan Stanley Securities Co. this month, said at a news briefing on May 14. “We will target not only wealthy households but also the younger generation.”
Sumitomo Mitsui Financial Group Inc., Japan’s second-largest lender by market value, is also enticing depositors to take risks. Its brokerage arm plans to increase assets under management by 40 percent to 42 trillion yen in three years by tapping customers at the lending unit, SMBC Nikko Securities Inc. CEO Tetsuya Kubo said in a May 28 interview.
Like Nomura, Daiwa is expanding its lending operations. Japan’s second-biggest brokerage formed a banking unit in 2011 that had 901,000 accounts with 2.4 trillion yen of deposits as of March 31, according to its website.
Nomura’s loan program allows borrowers to get credit faster than they can from commercial banks and may encourage them to switch portfolios from rival brokerages, Sakai said.
Customers can borrow as much as 50 percent of the market value of their domestic equity holdings and 80 percent of Japanese government bonds. Nomura has the right to sell the stock if the value falls below 70 percent of the loan amount.
One client inquired about the loans at a Tokyo branch in January and two days later borrowed about 20 million yen through Nomura’s website to buy a vintage car, according to Sakai.
The service is also attractive to business people who don’t want to use credit cards that show transaction details in statements that are mailed to their homes, he said.
“We call it a secret wallet,” said Sakai. “Company managers may want to take staff out for dinner or drinks. Abenomics is changing consumers’ sentiment for spending and they’re seeing the light at the end of a long tunnel.”