HONG KONG: Nomura Holdings Inc’s investment banking business in Asia is set to return to profit this fiscal year after more than a decade of losses since its Lehman Brothers Holdings Inc acquisition, according to its division chief.
Cost cuts and fees from financing will drive the profit rebound in the year ending March 31, said Kenji Teshima, head of investment banking for Asia excluding Japan.
Revenue is set to rise by about one third, led by private financing and dealmaking in India and Australia, he said, while warning that some transactions in China may be affected by the coronavirus outbreak.
Japan’s biggest securities firm last year unveiled plans to cut US$1bil of costs at its struggling global wholesale operation, helping to revive profit that’s been under pressure from years of losses abroad.
Teshima’s group is benefiting from the firm-wide savings even as he keeps net headcount largely unchanged.
The cost cuts “will indirectly have a positive impact in terms of cost to my business,” he said in an interview in Hong Kong. Coupled with the revenue gains, that means “all of a sudden, it’s a game-changer year”.
Teshima has shifted Nomura’s focus in several nations since taking the role four years ago. In India, he increased the emphasis on financing and the capital markets business rather than mergers advice, because many companies there need access to funds for growth. In Australia, he built a sponsor business from scratch, helping private equity funds execute deals.
While Nomura doesn’t split out regional earnings figures for its investment banking unit, wholesale revenue - which also includes global markets - in Asia ex-Japan jumped 53% in the nine months ended Dec 31. Pretax profit from the region was 23.1 billion yen (US$210mil) in the period, compared with a 3.7 billion yen loss a year earlier.
Shares of Nomura closed 0.3% higher on Wednesday in Tokyo. The stock has gained about 68% since early June on renewed optimism over the profit outlook.
Private financing, which involves giving loans against collateral, has been growing in India and Australia in the past few years, Teshima said. India has provided “a very good mix” of revenue as the bank bolsters its margin lending business there, enabling it to compete with foreign players, he said.
The bank set up a joint entity with the markets division two years ago to better structure financing deals when advising clients on mergers and stock and bond transactions. One growth area is to provide leverage to hedge funds and insurers to purchase high-yield bonds underwritten by the bank, allowing it to earn multiple fees from one transaction, he said.
Mergers advisory between Japan and Asia and cross-border activity between the region and the rest of the world “has also made a step up,” contributing to the growth, Teshima said. In Australia, there are opportunities stemming from Japanese companies’ appetite for acquisitions. “Australia is a country where there’s a hot eye from Japan in terms of foreign investment,” he said.
Australia and India contribute about 20% and 15% of ex-Japan Asia investment banking revenue, respectively, while China is the biggest market, making up about 40%, Teshima said.
Deals involving public fund-raising in China may be affected by the coronavirus outbreak and the trade war as market valuations shrink, Teshima said. Still, that will lead to more deals where companies need to raise funds privately, he added. — Bloomberg
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