Bloomberg News

Nomura Shares Jump After Unexpected Profit Increase: Tokyo Mover

February 02, 2012

Feb. 2 (Bloomberg) -- Nomura Holdings Inc. rose the most in three months after reporting an unexpected quarterly profit increase from cost cuts and the sale of private-equity investments.

Shares of Japan’s biggest brokerage jumped 7.1 percent, the biggest increase since Oct. 27, to 300 yen at the 3 p.m. close of Tokyo Stock Exchange trading. Daiwa Securities Group Inc. and the country’s top banks also rose. The Topix index gained 0.6 percent.

Nomura’s net income climbed 33 percent to 17.8 billion yen ($233 million) for the three months ended Dec. 31 from a year earlier, the Tokyo-based bank said in a statement yesterday. The average estimate of seven analysts surveyed by Bloomberg was for a 2 billion yen loss. Trading and brokerage commissions plunged and overseas losses widened, it said.

Chief Financial Officer Junko Nakagawa said yesterday the bank doesn’t plan to deepen its $1.2 billion of proposed expense reductions. Nomura is trimming payroll costs that surged after taking over Lehman Brothers Holdings Inc. assets in 2008.

“Nomura’s results showed the brokerage is physically fit and capable of generating profit in various ways, including investment sales,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co. in Tokyo. “We are also starting to see more benefits from the company’s cost-cutting efforts.’

Personnel costs fell 11 percent last quarter from a year earlier to 127.8 billion yen, Nomura said yesterday. Global headcount dropped to 34,933 employees as of Dec. 31 from 35,697 three months earlier.

Financial Shares Climb

Shares of Daiwa, Japan’s second-biggest brokerage, increased 4.5 percent to 281 yen in Tokyo. Mitsubishi UFJ Financial Group Inc., the country’s biggest lender by market value, climbed 2.5 percent after posting higher nine-month profit. Sumitomo Mitsui Financial Group Inc. gained 2.1 percent and Mizuho Financial Group Inc. rose 2.6 percent.

The Tokyo Stock Exchange suffered its biggest disruption in almost six years as a computer glitch forced the suspension of trading in 241 companies. It resumed trading of the stocks at 12:30 p.m. local time, about 4 1/2 hours after the bourse said the error was detected.

Mitsubishi UFJ’s net income jumped 48 percent in the nine months ended Dec. 31 to 815.8 billion yen from a year earlier, the lender said yesterday in a statement. The bank reaped a 28 percent profit increase from sales and trading of bonds and other securities. It also benefited from a 291 billion yen gain in the first quarter after converting preferred stock in Morgan Stanley for common shares.

Skylark Sale

Daiwa and Mizuho said this week that they are eliminating more brokerage jobs as Europe’s debt crisis roils markets. Mitsubishi UFJ yesterday joined Mizuho and Sumitomo Mitsui in posting lower lending income for the quarter as Japan’s sluggish economy hampered borrowing demand.

Nomura’s net income rose 33 percent last quarter from a year earlier. Revenue climbed 25 percent to 481.5 billion yen, the bank said. Gains from private-equity investments totaled 34.6 billion yen, spurred by the 128 billion yen sale of Japanese family restaurant chain Skylark Co.

Brokerage commissions fell 26 percent from a year earlier to 74 billion yen, the bank said. Investment-banking fees dropped 49 percent to 17.2 billion yen. Trading profit declined 24 percent to 80.1 billion yen.

Nomura may be downgraded by Moody’s Investors Service, which began a review in November, citing overseas losses and a failure to generate returns from Lehman assets in Europe and Asia that the Japanese bank bought in 2008. Moody’s rates Nomura Baa2, the second-lowest investment grade.

Maki Hanatate, senior credit officer at Moody’s in Tokyo, declined to comment on Nomura’s earnings.

Question Remains

‘‘The question remains whether the profit Nomura made this time is sustainable, and whether it will be able to boost revenue in future,” said Katsunori Tanaka, an analyst at Goldman Sachs Group Inc. in Tokyo with a neutral rating on Nomura. He said it was “positive” to see that the company pared personnel expenses.

Nomura continued to lose money abroad. Pretax losses from overseas operations widened to 19.4 billion yen from 3 billion yen a year earlier.

“Nomura bounced back after being caught by turbulence in Europe in the previous quarter,” said Masao Muraki, a Tokyo- based analyst at Deutsche Bank AG. “Visibility is still cloudy, and the bank may struggle to raise revenue, including at its retail and asset management businesses.”

Cost-Cut Impact

Chief Executive Officer Kenichi Watanabe is trimming payroll costs that surged after his company inherited 8,000 Lehman employees.

“We expected the impact of expense reduction to emerge from the fourth quarter, but a small impact was reflected in third-quarter results,” Takehito Yamanaka, an analyst at Credit Suisse, wrote in a report after earnings were reported. Credit Suisse raised its rating on the stock to “outperform” from “neutral.”

Two of the highest-ranking former Lehman employees stepped down in January. Jesse Bhattal, who was chief of wholesale banking, left Nomura after his division bore the brunt of the losses. Tarun Jotwani’s global markets division was split into equities and fixed income after he resigned.

Daiwa posted on Jan. 31 a fourth straight quarterly loss and said it will cut a further 200 jobs overseas, taking total dismissals for the current fiscal year to 500. Mizuho, Japan’s third-biggest bank by market value, said it will eliminate 300 more positions at its brokerage arm by March 31, bringing total cuts to 1,000.

--With assistance from Shingo Kawamoto, Shigeru Sato and James Gunsalus in Tokyo. Editors: James Gunsalus, Russell Ward

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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