Photographer: Kiyoshi Ota/Bloomberg

Nomura Falls Most in Four Years After Delaying Overseas Profit Goal

Updated on
  • Net income falls 49%, CFO postpones goal for overseas profit
  • Market turmoil may continue to hurt Japanese brokerages

Nomura Holdings Inc. plunged the most in more than four years in Tokyo trading after third-quarter net income fell and Japan’s biggest securities firm postponed a target for making overseas operations profitable.

The shares declined 11 percent, the most since November 2011, to 593.3 yen at the lunch break in Tokyo. The benchmark Topix index slid 3.3 percent as this year’s global equity rout deepened. Net income declined 49 percent to 35.4 billion yen ($296 million) in the three months ended December as brokerage commissions and investment-banking fees slumped, the Tokyo-based company said Tuesday.

Nomura will postpone its overseas pretax profit target of 50 billion yen for the year ending in March, Chief Financial Officer Shigesuke Kashiwagi said. 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’s earnings were worse than expected and investors are concerned that current market conditions will continue to hurt brokerages,” said Makoto Kikuchi, CEO of Myojo Asset Management Co. in Tokyo. “The result also showed how difficult it is to profit from overseas business. There are tough competitors out there.”

January Weakness

Kashiwagi signaled that last quarter’s weakness is persisting into this year. Business with Japanese individual clients “wasn’t that good” in January as the market turmoil dissuaded investors from trading, the CFO said on a call with analysts Tuesday. In wholesale operations, trading was slow as risk aversion led to a drop in volumes, he said.

Net income missed the 38.7 billion-yen average estimate of five analysts surveyed by Bloomberg. Third-quarter revenue fell 14 percent from a year earlier. Brokerage commissions dropped 17 percent and investment-banking fees slid 31 percent. Trading income declined 3.9 percent.

Nomura has about eight times as many employees outside Japan as Daiwa Securities Group Inc. and has retained its global ambitions even as banks like Barclays Plc and Standard Chartered Plc retrench. Unlike Daiwa, it refrained from announcing a share buyback in the earnings season, though Kashiwagi said the company wouldn’t rule out doing so in the future if the timing is right.

Daiwa dropped 4.4 percent to 725.4 yen in morning trading, erasing this year’s gain. Nomura is down 13 percent in 2016.

Nomura posted a pretax loss of 19.9 billion yen overseas in the three months ended December, widening from 7 billion yen a year earlier and taking nine-month losses abroad to 63 billion yen. The company hasn’t been profitable overseas 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.

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.