Nomura tumbles most in three months after 97% profit drop


Disappointing performance: A pedestrian passing by a branch of Nomura Securities in Tokyo. Losses tied to ACI have weighed on results for the second consecutive quarter. — AFP

TOKYO: Nomura Holdings Inc shares sank the most in more than three months after reporting earnings that barely eked out a profit, adding urgency to chief executive officer Kentaro Okuda’s plans to diversify Japan’s largest brokerage.

The stock fell as much as 5.7% yesterday in Tokyo before paring some of the decline. That’s the sharpest intraday drop since April 27. Losses tied to American Century Investments (ACI), a US asset manager in which Nomura holds a stake, weighed on results for the second consecutive quarter.

Fixed-income gains couldn’t make up for weakness elsewhere. Profit was hit by a decline in underwriting and a drop in revenue at the company’s mainstay domestic retail brokerage business. Net income for the three months ended June slid 97% to the lowest in five quarters, falling short of estimates from four analysts polled by Bloomberg.

The slump underscores how the firm needs to deliver on efforts to outgrow a dependence on the fixed-income business.

Okuda has pledged to diversify revenue streams as he seeks to move on from a challenging period marked by a more than US$2bil (RM8.9bil) hit from Nomura’s dealings with family office Archegos Capital Management LP and costly litigation in the United States.

“It’s a disappointing result with surprisingly large investment losses,” said Shin Tamura, a Bloomberg Intelligence analyst.

Paper losses related to Nomura’s stake in the US mutual fund manager were 18.5 billion yen (RM615mil) in the three months through June due to drops in global stock markets and gains in interest rates. Nomura is working on ways to reduce the impact on its business, chief financial officer Takumi Kitamura said on an analyst call Wednesday.

Disappointing performance: A pedestrian passing by a branch of Nomura Securities in Tokyo. Losses tied to ACI have weighed on results for the second consecutive quarter. — AFPDisappointing performance: A pedestrian passing by a branch of Nomura Securities in Tokyo. Losses tied to ACI have weighed on results for the second consecutive quarter. — AFP

“The volatility associated with ACI is perceived by management as a huge challenge to be worked through. So as needed, we are considering the mitigating measures that we could implement,” he said.

ACI, in which Nomura holds a roughly 39% non-controlling stake, had assets under supervision of more than US$250bil (RM1.1 trillion) as of November.

Meanwhile, a global slump in dealmaking and stock and bond issuance is complicating Nomura’s efforts to diversify its business into this area.

Nomura said revenue from investment banking fell 33% from a year earlier led by a drop in fees from equity underwriting, joining banks in Europe and in the United States whose deal rosters have dwindled during months of heightened volatility.

Still, fee income from merger and financial advisory services rose about 7% on year in the quarter.

Last week, Deutsche Bank AG lowered the outlook for its investment bank despite beating forecasts in its trading arm, while Credit Suisse Group AG said it’s scaling back its investment bank in the face of mounting losses.

JPMorgan Chase & Co and Morgan Stanley both fell short of analysts’ estimates, partly due to the slump in dealmaking.

Revenue from equity and fixed income trading rose 80% from a year earlier when Nomura booked 56.1 billion yen (RM1.86bil) in trading losses associated with Archegos, an investment firm set up to manage the fortune of trader Bill Hwang.

Nomura fixed income traders recorded gains of 28% on a boost from volatility in bond markets driven by the Federal Reserve’s rate increases and speculation over Bank of Japan policy.

“Everything looks lousy except for fixed-income trading,” said Michael Makdad, an analyst at Morningstar Inc in Tokyo.

“I don’t think it’s a big surprise given transaction volumes and postponement of deals during the quarter.” — Bloomberg

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