Nomura's Loss Abroad Makes Annual Profit Goal More Distant

  • CFO sticks to 50 billion yen target for profit outside Japan
  • Net income falls 12% on trading slump, lawsuit settlement

Nomura Holdings Inc. Chief Executive Officer Koji Nagai’s goal of earning 50 billion yen ($415 million) from operations abroad this fiscal year is looking ever more distant.

Japan’s largest securities firm on Wednesday reported a 45.8 billion yen pretax loss from overseas businesses in the three months ended Sept. 30, citing a trading slump and the settlement of a lawsuit with an Italian bank. The loss, the biggest in four years, means Nomura would have to make about 93 billion yen from outside Japan in the fiscal second half to reach the target.

Nagai’s ambition to restore overseas operations to profit has proved elusive since he took the top job in 2012, first embarking on cost cuts and later reversing course and hiring bankers. Chief Financial Officer Shigesuke Kashiwagi said the company is sticking to the earnings target, though admitted it has become “distant.”

“Nomura’s overseas earning prospects are becoming very challenging,” said Masao Muraki, a senior analyst at Deutsche Securities Inc. in Tokyo. “It remains to be seen how the company will adjust its strategy.”

Profit Slide

Net income dropped 12 percent last quarter from a year earlier to 46.6 billion yen. That beat the 16.7 billion yen average estimate of eight analysts surveyed by Bloomberg. The profit decline was mitigated by deferred tax assets of about 54 billion yen from winding up a London-based unit that booked derivatives trades. The firm also benefited from an increase in investment banking income after it secured equity and debt underwriting deals and advised on mergers overseas.

Nomura’s shares fell as much as 5.3 percent, the most in two months, and traded 4.6 percent lower at 750.5 yen as of 9:27 a.m. in Tokyo. The Topix index of stocks was up 0.3 percent.

Fees from investment banking more than doubled to 44.9 billion yen, the highest since at least 2001, the company said. Asset management fees rose 17 percent, while trading profit tumbled 51 percent due to last quarter’s global market rout and the litigation settlement.

Legal Settlement

Nomura forfeited 440 million euros ($486 million) to end a derivative contract and settle legal claims with Banca Monte dei Paschi di Siena SpA. The settlement cut second-quarter results by 35 billion yen. Excluding that, the company lost 8.1 billion yen outside of Japan in the first half.

“There are high hurdles to clear the overseas profit target,” said Koichi Niwa, a senior analyst at SMBC Nikko Securities Inc. in Tokyo. “But Nomura’s relationships with individual investors and corporate clients are bearing fruit in equity deals and mergers and acquisitions.”

Daiwa Securities Group Inc., Japan’s second-biggest brokerage, posted a 35 percent drop in second-quarter profit due to the slump in trading. Net income slid to 24.3 billion yen, the Tokyo-based company said Wednesday. It is also losing money abroad, though its deficit narrowed to 692 million yen from 1.8 billion yen a year earlier.

Japan Post

Nomura CEO Nagai has been relying on domestic business such as its retail brokerage and asset management division as Japanese started investing more of their savings. The company attracted individual investors to buy shares in Japan Post’s $12 billion initial public offering, the world’s biggest this year.

Nomura added about 2,500 accounts each day on average so far in October, almost double the daily average for 2014, according to people with knowledge of the matter. As well as being one of the four global coordinators of the Japan Post IPO, it reaped fees from managing share sales for Toyota Motor Corp. and Sony Corp., cementing its spot as the country’s No. 1 equity underwriter.

The bank decided to wind up London-based Nomura Capital Markets Ltd. in a move that will be completed by March 2020, it said in a separate statement. No jobs will be cut in the move, Kashiwagi said.

Nomura added 175 jobs overseas in the 12 months to Sept. 30, a company presentation showed. Of those, 118 positions were added in Asia and 93 in the U.S. as the number of staff in Europe fell by 36.

The firm is cutting about 60 fixed-income and credit-derivative positions at its global markets operation in London, including bond traders and analysts, a person familiar with the situation said in August.

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