Nomura Shares Fall After Surprise Loss Overshadows Cost Cutting

  • Japanese bank is cutting back after six years of losses abroad
  • COO pledges to return overseas businesses to profit this year

Nomura Holdings Inc. fell in Tokyo trading after posting a surprise quarterly net loss and unveiling steps to return overseas operations to profit by cutting costs.

The shares dropped 4.5 percent at 9:43 a.m. Thursday in Tokyo, the worst performance on the Topix Securities Index, which lost 2.3 percent. The fourth-quarter net loss, Nomura’s first in more than four years, totaled 19.2 billion yen ($172 million) as trading income and brokerage commissions slumped and it set aside cash for payouts tied to job cuts.

Japan’s biggest brokerage aims to post a profit overseas in the year ending March 2017, something it has failed to do since 2010, Chief Operating Officer Tetsu Ozaki said late Wednesday. The Tokyo-based firm confirmed that it’s exiting operations including European equity research and underwriting and trimming areas such as leveraged finance in the U.S. to cope with market headwinds and regulatory uncertainty.

“The earnings were worse than expected, and investors see this trend continuing as the market hasn’t turned around yet,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. On the other hand, “the overseas restructuring plan sounds positive, and it will have an effect when the market recovers.”

Chief Executive Officer Koji Nagai expects to save about $700 million in the latest cost-cutting round, the third since it bought Lehman Brothers Holdings Inc.’s Asian and European businesses during the global financial crisis. Global securities firms are having to rely on expense reductions to shore up earnings as market volatility dissuades clients from trading and raising funds.

Nomura shares fell even after it announced plans for its first stock buyback in a year. It will spend as much as 20 billion yen purchasing up to 0.9 percent of its shares, a move that Nagai signaled in an interview in February.

Revenue dropped 29 percent in the three months ended March from a year earlier to 362.2 billion yen. Brokerage commissions slid 29 percent, and trading income tumbled 54 percent. Investment banking fees rose 12 percent. The company booked 16 billion yen in employee severance costs.

Nomura posted a pretax loss of 16.6 billion yen overseas for the quarter, bringing the fiscal year’s total to 79.6 billion yen, the biggest in four years. Net income fell 41 percent in the year ended March to 131.6 billion yen, the lowest in three years.

Europe Cuts

The firm said it will also exit European equity derivatives and trim costs in some fixed-income sales and research operations in the region. The restructuring may affect as many as 1,000 jobs, people familiar with the matter said earlier this month.

“The moves they are making are sensible but it is not yet clear if they will be enough to achieve sustainable profits from overseas operations,” said David Marshall, a senior analyst at research firm CreditSights Inc. in Singapore. “Market conditions are challenging and Nomura’s struggles may lead clients to have doubts about its commitment to its overseas operations.”

Goldman Sachs Group Inc. and Morgan Stanley are among Wall Street banks that moved to counter declining revenue with cost reductions in the first quarter. Others such as Barclays Plc have been forced to exit certain businesses altogether as their CEOs focus on preserving capital. Barclays reported a 25 percent decline in first-quarter profit Wednesday.

Nomura was ranked 25th among advisers on global mergers and acquisitions for the year ended March 31, compared with 23rd a year earlier, data compiled by Bloomberg show. It was No. 11 underwriter for global equity sales, compared with 13th a year earlier, according to the data.

“We will make our overseas operations profitable this fiscal year,” Ozaki told reporters. “We won’t quit global businesses.”

Before it's here, it's on the Bloomberg Terminal.