Nomura Profit Falls as Firm Postpones Overseas Earnings Goal

  • Profit drops 49% on brokerage commissions, investment banking
  • Bank is on track for sixth straight annual pretax loss abroad

Nomura Holdings Inc., dragged down by its money-losing business outside Japan, posted a 49 percent drop in third-quarter profit and said an earnings goal for overseas operations will be reached later than initially targeted.

Net income declined to 35.4 billion yen ($294 million) in the three months ended Dec. 31 as brokerage commissions and investment-banking fees slumped, Japan’s biggest brokerage said Tuesday. Chief Financial Officer Shigesuke Kashiwagi said the firm will postpone its overseas pretax profit target of 50 billion yen for the year ending in March after the results showed the firm lost 63 billion yen abroad in the first nine months.

Chief Executive Officer Koji Nagai’s inability to stem losses overseas casts doubt on his strategy of expanding in countries including the U.S. at a time when global market volatility is rising. Nomura has about eight times as many employees outside Japan as smaller competitor Daiwa Securities Group Inc., and has retained its global ambitions even as banks like Barclays Plc and Standard Chartered Plc retrench.

Postponing the overseas profit goal “shows how severe the global market investment conditions are,” Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo, said by phone. “It’s difficult to foresee the future in this industry.”

Overseas Losses

Net income missed the 38.7 billion-yen average estimate of five analysts surveyed by Bloomberg. Revenue fell 14 percent in the third quarter from a year earlier to 434.5 billion yen, the company said in a statement. Brokerage commissions dropped 17 percent to 102.3 billion yen, while investment-banking fees slid 31 percent to 20 billion yen. Trading income declined 3.9 percent to 105.2 billion yen.

Nomura posted a pretax loss of 19.9 billion yen overseas in the three months, widening from 7 billion yen a year earlier. The company hasn’t been profitable abroad on an annual basis since the year ended March 2010. Kashiwagi said he expects the 50 billion-yen target to be achieved at some point before March 2020.

The drop in brokerage commissions came as stock trading volume slumped. Transactions at exchanges in Tokyo and Nagoya dropped about 8 percent in the last three months of 2015 from a year earlier, according to Japan Exchange Group Inc. data.

Still, Bank of Japan Governor Haruhiko Kuroda’s surprise decision last week to introduce negative interest rates triggered a rebound in the country’s equities that could renew domestic clients’ appetite to invest more of their savings.

Negative Positive

“Negative rates are a positive for Nomura,” Masao Muraki, senior analyst at Deutsche Bank AG in Tokyo, said before the results. “The depreciation of the yen and high stock prices will boost the valuation of individual clients’ assets and make them more willing to invest.”

The Nikkei 225 Stock Average has risen 4.2 percent in the three trading days since Jan. 29, when the central bank said it will start charging banks 0.1 percent interest on some of their deposits at the institution, a move that could prompt them to put their money elsewhere. The gauge is still down 6.7 percent this year. Nomura gained 9.4 percent in the past three sessions, paring this year’s decline to 1.5 percent.

Hiring, Acquiring

CEO Nagai is expanding in the U.S. by hiring staff and making acquisitions. In December, Nomura agreed to pay about $1 billion for a 41 percent stake in U.S. money manager American Century Investments from Canadian Imperial Bank of Commerce. The Japanese firm is seeking to hire about 20 investment bankers in the region this year, including people with clients in the technology, consumer and health-care industries, Kentaro Okuda, global head of investment banking, said in an interview late last year.

Nomura had 12,787 employees outside of Japan as of Dec. 31, 44 percent of total staff, and Daiwa employed 1,603 people overseas, about 11 percent of the total, according to company filings.

Nomura was a joint global coordinator for the 1.4 trillion-yen initial public offering of state-owned Japan Post Group companies last quarter, which spurred a rush of retail accounts at the firm. The brokerage was named to manage an IPO for Kyushu Railway Co., along with Mitsubishi UFJ Morgan Stanley Securities Co. and JPMorgan Chase & Co. The offering may take place as soon as the year starting April.

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