Mizuho Seeks to Challenge Nomura as Japan’s Top Equity Firmby
Targeting individuals, execution after boosting stock research
‘We have the potential to catch up’ to Nomura, Osade says
Mizuho Financial Group Inc., the Japanese bank that added dozens of stock analysts and salesmen in the past year, is seeking to loosen Nomura Holdings Inc.’s grip on the nation’s potentially lucrative yet elusive retail brokerage business.
Tokyo-based Mizuho wants to overtake Nomura as the nation’s biggest equity firm by client assets and revenue, according to Yohei Osade, global head of Asian equities. To achieve the goal, the bank’s Mizuho Securities Co. unit will make the most of its expanded research capability to step up marketing to non-institutional investors, as well as boost execution services, Osade said in an interview in Tokyo.
The ambitions reflect Chief Executive Officer Yasuhiro Sato’s efforts to diversify from Mizuho’s traditional strengths in loans and bonds to generate more fee income as negative interest rates squeeze lending profitability. Nomura, Japan’s biggest securities firm, has relied on profit from its retail brokerage network for years, dominating a market that global banks including Merrill Lynch and Morgan Stanley have failed to penetrate as risk-averse households hoard cash.
Mizuho had 11.8 trillion yen ($114 billion) of retail customer assets in equities as of June, compared with Nomura’s 55.8 trillion yen.
“We’re far behind Nomura in terms of client assets and revenue from equities, but we have the potential to catch up,” Osade said, without giving a time frame.
Japan’s third-largest lender by market value is counting on households shifting more of their $17 trillion of financial assets into stocks at a time when investors are losing faith in Prime Minister Shinzo Abe’s ability to revive the world’s third-largest economy. The Topix index has slid 11 percent this year as the Bank of Japan’s introduction of negative rates failed to stop the yen from strengthening and consumer prices from sliding.
Mizuho, rated by Nikkei Veritas as Japan’s No. 1 equity research house since 2014, will tout its ranking more aggressively to retail clients, Osade said. Its analysts will repackage reports for individuals and provide seminars at branches, he said. The firm will also give non-institutional clients closer access to company executives to bolster investor relations.
“Retail business is important as a steady revenue source,” said Toru Komatsu, CEO of Komatsu Portfolio Advisors Co., which advises wealthy individual investors in Japan. “If brokerages can add individual clients when the market is quiet, that will bring tremendous commissions once the market reverses,” he said, adding that Mizuho’s status as the top researcher will attract retail investors.
After hiring more than 45 equity analysts and salesmen since mid-2015, Mizuho recently recruited two senior managers from competitors including Nomura to bolster oversight of the business. Hiroshi Udagawa, who worked for UBS Group AG for about 17 years, joined the firm in July as deputy head of equities. Joji Watanabe, a 27-year veteran of Nomura, started in October as global head of equity execution for Asia including Japan.
“We’ve established a firm footing in the industry by strengthening research, sales and corporate access,” said Osade, who joined Mizuho from Merrill Lynch Japan Securities Co. in 2012. “Expanding non-institutional investor business and enhancing our execution platform will be important at the next stage.”
For execution, Mizuho is reviewing how to expand its electronic trading platform globally and tune up its algorithm trading through possible investments or alliances, Watanabe said. The firm plans to add artificial intelligence to its stock trading service for institutional
investors later this year.
With deposit rates virtually at zero, lenders can pitch investments to customers who are seeking to do more with their cash, according to Udagawa. Mizuho, which began broadcasting television advertisements in September promoting its research ranking, is trying to tap young and wealthy individuals at its 104 brokerage branches and 166 bank outlets that have a securities counter, he said. That’s a larger network than Nomura, which has 159 branches.
Individual client assets held at Mizuho’s brokerage unit remain dwarfed by Nomura’s, but they’ve been increasing more rapidly as clients shift cash from bank deposits to brokerage accounts. The net flow of client assets to Mizuho Securities totaled 1.66 trillion yen for the year ended March 31, compared with just 48 billion yen for Nomura.
“Under negative rates, banks are playing a key role because they can transfer customers’ assets to the brokerage,” Udagawa said. “That will differentiate us from Nomura.”