Bloomberg News

Nomura May Post First Loss Since March 2009 on Trading Slump

October 28, 2011

(Updates with Daiwa earnings in the second paragraph.)

Oct. 28 (Bloomberg) -- Nomura Holdings Inc. may report its first loss in 10 quarters next week as Japan’s biggest brokerage and rival Daiwa Securities Group Inc. join U.S. banks in seeing trading and investment banking income erode.

Nomura will probably post a loss of 35 billion yen ($461 million) for the three months ended Sept. 30, according to the average estimate of seven analysts surveyed by Bloomberg. That compares with a 1.1 billion-yen profit a year earlier. Tokyo-based Daiwa today said its second-quarter loss widened to 19.4 billion yen, the third in a row and more than four times bigger than 4.2 billion yen it lost a year earlier.

The brokerages aim to pare costs as the global economy slows and Europe’s debt crisis continues, with Daiwa today saying it will cut more than 300 jobs overseas. Nomura Chief Executive Officer Kenichi Watanabe, who has expanded abroad for three years, may focus on advising Japanese clients on takeovers, Japaninvest Group Plc’s Shiro Yoshioka said.

“It’s crucial to form a strategy to bolster revenue rather than just cutting costs,” said Yoshioka, an analyst at the London-based Japaninvest brokerage in Tokyo who recommends buying Nomura stock. “Takeovers may provide a beam of hope, as Japanese companies are seeking assets abroad because of the stronger yen and following the record earthquake” in March.

Wall Street Woes

JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley posted their worst quarter in both trading and investment banking since the depth of the global financial crisis. Corporate clients put off fund- raising plans and investors sold riskier assets, pushing the firms’ shares lower by an average 30 percent this year.

Nomura, which bought Lehman Brothers Holdings Inc.’s Asian and European businesses in 2008, has tumbled 39 percent on the Tokyo Stock Exchange this year and reached a 37-year low on Oct. 5 on concern that its global expansion is faltering. The firm is scheduled to announce earnings on Nov. 1 at 3 p.m. local time.

“We have concerns that Nomura’s overseas business won’t be able to contribute to revenue in future when the market deteriorates further,” said Maki Hanatate, a Tokyo-based senior credit officer at Moody’s Investors Service. In domestic operations, “Nomura has a chance to boost its revenue from cross-border acquisition advisory,” she said.

Daiwa Job Cuts

At Daiwa, Japan’s second-largest brokerage, trading profit fell to 14.9 billion yen last quarter from 34.2 billion yen a year earlier, the company said in its earnings statement today.

Underwriting fees declined to 4.8 billion yen from 5.3 billion yen, while brokerage commissions gained to 10.2 billion yen from 9.6 billion yen. Daiwa said it will cut 100 jobs in Asia to 1,100. In Europe, it will trim payrolls by 200 to 700.

Shares of Daiwa have fallen 32 percent this year, more than the Topix Index’s 14 percent drop. They closed 1 percent lower at 286 yen today before the earnings announcement. Nomura rose 2.3 percent to 316 yen, joining a global rally after European policy makers announced measures to contain the debt crisis.

Trading profit at Nomura probably fell to about 43 billion yen for the quarter from 103 billion yen a year earlier, according to Tatsuo Majima, a Tokyo-based analyst at Tokai Tokyo Financial Holdings Inc. who rates the stock as “neutral.” Investment banking fees slid to about 13 billion yen from 24.9 billion yen, he said.

Keiko Sugai, a Tokyo-based spokeswoman for Nomura, declined to comment on the analysts’ estimates.

Wooing Retail Clients

The Japanese firm’s retail business probably fared better last quarter, according to Tokai Tokyo, which estimates brokerage commissions rose 4.2 percent to 87 billion yen.

To attract retail customers, Nomura will add a branch in Yokohama next month, increasing its national network to 178, the largest in its 86-year history, the brokerage said Oct. 25. The firm also plans to stop charging account maintenance fees to individuals from next month, it said Sept. 30.

Nomura is preparing to shed as many as 400 jobs, mainly in Europe, to stem losses, two people with knowledge of the matter said in September. The company said in July that it plans to cut expenses at its wholesale unit by about $400 million annually.

Trimming jobs and expenses abroad before the firm’s Lehman investments bear fruit is “a pity” because it may hamper revenue, Japaninvest’s Yoshioka said.

Takeovers involving Japanese companies have climbed to $148.6 billion this year, surpassing the $108 billion total for last year, according to data compiled by Bloomberg.

Nomura is ranked second among advisers in Japan for deals announced this year, after it ceded the top spot to Goldman Sachs Group Inc., the data show. Nomura is the top adviser on deals involving Japanese companies making acquisitions abroad.

While M&A deals are surging, share sales have plunged this year as companies shun the equity market following the earthquake and tsunami. Japanese equity and equity-linked offerings totaled 1.46 trillion yen this year, less than a third of the 4.97 trillion yen raised in all of 2010, the figures show.

Nomura is ranked first among managers of those offerings, while Daiwa is second, Bloomberg data show.

--With assistance from Shingo Kawamoto in Tokyo. Editors: Russell Ward, Chitra Somayaji

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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