Nomura Holdings Inc. (8604)’s quarterly net income rose 86 percent, beating analysts’ estimates, and Daiwa Securities Group Inc. (8601) returned to profit as gains from trading outweighed declines in investment banking.
Net income climbed to 22.1 billion yen ($273 million) for the three months ended March 31 from 11.9 billion yen a year earlier, Nomura said in Tokyo today. The average estimate of nine analysts surveyed was for 14.4 billion yen profit.
The second straight gain in quarterly profit for Nomura may help to assure investors that earnings will keep rebounding as Japan’s biggest brokerage implements a plan to cut $1.2 billion of expenses. Nomura’s world rankings for managing bond sales and advising on takeovers climbed in the quarter, while a decline in global equity offerings hampered fees.
“It’s encouraging to see the results were better than estimates and that trading business is becoming more sustainable,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “It remains to be seen if Nomura can continue to boost profit given the uncertainty in the market.”
Daiwa, Japan’s second-largest brokerage, swung to a profit of 10.9 billion yen for the quarter from a loss of 33.1 billion yen a year earlier, led by trading. That missed the 18.7 billion yen average estimate of five analysts surveyed by Bloomberg.
Shares of Daiwa fell 2.3 percent to 304 yen at the close of trading in Tokyo today before the earnings were announced. Nomura declined 1.8 percent to 330 yen.
Nomura has gained about 47 percent since reaching the lowest in at least 37 years on Nov. 24, on speculation that the firm’s prospects will improve as the Japanese economy rebuilds from last year’s earthquake and markets recover worldwide.
Macquarie Group Ltd. (MQG), Australia’s biggest investment bank, today forecast an earnings revival after a slump in trading income and dealmaking fees dragged full-year net income to an eight-year low of A$730 million ($757 million). The trading rebound last quarter helped U.S. firms including Bank of America Corp. post earnings that beat analysts’ estimates.
Revenue at Tokyo-based Nomura rose to 565.4 billion yen for the quarter from 365 billion yen a year earlier. Trading profit climbed to 98.9 billion yen from 68.7 billion yen.
Nomura’s investment banking fees fell to 14.8 billion yen in the three months ended March from 27.8 billion yen a year earlier. Brokerage commissions dropped to 90.4 billion yen from 103.8 billion yen.
Trading profit at Tokyo-based Daiwa rose to 29.7 billion yen from 16 billion yen a year earlier. Brokerage commissions dropped to 11.8 billion yen from 15.2 billion yen. Underwriting fees slid to 2.8 billion yen from 8.9 billion yen.
Japan’s benchmark Nikkei 225 Stock Average (NKY) climbed 19 percent last quarter, its best start to a calendar year since 1988. It has since lost 5.8 percent. The world’s third-largest economy probably resumed growing in the quarter from a contraction in the final three months of 2011, according to economists surveyed by Bloomberg.
Nomura made inroads toward its cost-cutting plan in the past six months, trimming the number of employees by 1,302 to 34,395 worldwide as of March 31, with most of the reductions coming from Japan and Europe. The firm tripled the expense goal to $1.2 billion after posting a 46.1 billion yen loss in the quarter ended September, its first since the start of 2009.
Cost Plan Progress
The cost-reduction program “is progressing as planned,” Chief Executive Kenichi Watanabe said in a statement today. “We continue to reduce risk assets and strengthen our risk management to position the firm for the new regulatory environment.”
Nomura’s labor costs swelled after it bought bankrupt Lehman Brothers Holdings Inc.’s Asian and European businesses in 2008 -- an expansion effort that has yet to pay off. The Japanese firm continued to lose money abroad last quarter, with pretax losses from overseas more than doubling to 24.6 billion yen from 9.7 billion yen a year earlier. In Europe alone, pretax loss totaled 23.3 billion yen.
Daiwa is also paring costs, saying in January that it will eliminate 200 positions abroad on top of 300 cuts announced in October as it seeks to stem losses in Europe and Asia.
Watanabe revamped Nomura’s trading operations last quarter by splitting the global markets unit into fixed-income and equity businesses. He appointed Steve Ashley as global head of fixed income in January following the resignations of two bankers, including former global markets chief Tarun Jotwani.
The firm has hired traders in the U.S., Europe and the Middle East, including head of Treasury trading J.J. Lando, who joined from Goldman Sachs Group Inc. last year as a managing director in New York.
While Nomura lifted its rankings for advising on global mergers and managing bond sales last quarter, investment banking fees have been curtailed by companies issuing fewer shares, according to data compiled by Bloomberg. Global equity offerings fell 26 percent in the three months from a year earlier, the data show. In Japan, share sales declined 58 percent.
Nomura was No. 10 underwriter for global equity sales in the three months, arranging 19 transactions valued at $2.9 billion, maintaining its position from a year earlier when it managed 25 deals worth $7.1 billion, according to Bloomberg data.
Its ranking for international bond underwriting climbed three spots to 26th. On mergers and acquisitions, Nomura was No. 8 global adviser for the quarter, up from 14th a year earlier.
“Profitability in market-related business recovered, and it obtained more global investment banking deals in the quarter,” said Kouichi Niwa, a senior analyst at SMBC Nikko Securities Inc. in Tokyo. “Nomura has set the stage for rejuvenating profitability.”
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