Bloomberg News

Nomura Says Job Cuts to Ease as Profit Grows for Second Quarter

April 27, 2012

Nomura Holdings Inc. (8604), Japan’s biggest brokerage, said it will ease the pace of job cuts after efforts to trim costs, including eliminating 1,300 positions, helped profit climb in each of the past two quarters.

“We do not foresee any substantial reduction in headcount,” Jonathan Lewis, co-deputy chief financial officer, said in a phone interview from London yesterday after Nomura posted quarterly profit that rose 86 percent from a year earlier. “We are broadly comfortable with our headcount level but will always look to adjust costs in light of market conditions.”

Net income climbed to 22.1 billion yen ($273 million) in the three months ended March, beating analysts’ estimates as gains from trading outweighed declines in investment banking. Chief Executive Kenichi Watanabe said the Tokyo-based company’s $1.2 billion cost-cutting program is “progressing as planned.”

“Nomura may need to work harder on restructuring as it still employs a huge number of people globally,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. The firm should allocate resources to areas such as advising Japanese companies seeking takeovers abroad, while paring unprofitable operations including those in Europe, he said.

Since the end of September, Nomura has cut the number of employees worldwide by 1,302 to 34,395 as of March 31, with most of the reductions coming from Japan and Europe, company figures showed yesterday. Staff numbers are still 34 percent higher than they were in March 2009, following Nomura’s purchase of bankrupt Lehman Brothers Holdings Inc.’s operations in Asia and Europe.

Macquarie’s Outlook

Nomura isn’t the only investment bank in the region that’s relying on cost cuts to revive earnings. Macquarie Group Ltd. (MQG), Australia’s largest investment bank, said yesterday that profit at all units in the year to March 2013 will either improve or remain steady as expenses fall. Macquarie shaved operating costs by 8 percent and jobs by 1,354 in the year ended March 31, taking the workforce to 14,202.

Daiwa Securities Group Inc. (8601), Nomura’s biggest domestic rival, 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.

Daiwa posted improved earnings yesterday, returning to a profit of 10.9 billion yen for the fiscal fourth quarter from a loss of 33.1 billion yen a year earlier, led by trading income. The results still missed the 18.7 billion yen average estimate of five analysts as fees and brokerage commissions dropped.

Shares of Daiwa fell 2.3 percent to 304 yen at the close of trading in Tokyo yesterday before the earnings were announced. Nomura declined 1.8 percent to 330 yen.

Economy Rebuilds

Nomura shares have gained 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.

Revenue at Tokyo-based Nomura rose 55 percent last quarter from a year earlier to 565.4 billion yen, the company said. Trading profit climbed 44 percent to 98.9 billion yen. Investment banking fees fell 47 percent to 14.8 billion yen and brokerage commissions dropped 13 percent to 90.4 billion yen.

Labor costs at Nomura swelled after it bought the Lehman Brothers businesses -- 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

Moody’s Downgrade

Moody’s Investors Service cut Nomura’s debt rating to the lowest investment grade on March 15, saying global competition raises questions over its profitability. Daiwa was lowered to the same grade, Baa3, in November.

Nomura showed an ability to compete in investment banking last quarter, as it rose in the world rankings for managing bond sales and advising on takeovers. The company was ranked No. 8 global adviser for the quarter, up from 14th a year earlier, according to data compiled by Bloomberg. For international bond underwriting, it climbed three spots to 26th. Nomura remained at No. 10 among managers of global equity sales.

“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.”

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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