Bloomberg News

Nomura Targets Investment Banking Recovery on Japan Marke

January 31, 2013

Nomura’s Profit Misses Estimates as Investment Banking Fees Drop

A pedestrian walks past a Nomura Securities Co. branch in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Nomura Holdings Inc. (8604), Japan’s biggest brokerage, said it expects its investment banking operations to recover this year as the country’s stock rally prompts companies to tap capital markets.

“We have a very positive view on our pipeline as the stock market and Japan as a whole are doing well,” Chief Financial Officer Junko Nakagawa said in Tokyo yesterday after the company posted third-quarter profit that missed estimates as investment banking fees fell. “We want to help Japanese corporates as their business opportunities improve.”

Investment banking has been a weak link amid a revival in profit growth at Nomura after it lost some business managing bond and equity sales following last year’s insider-trading scandal. The stock rebound, fueled by Prime Minister Shinzo Abe’s efforts to stimulate the world’s third-largest economy, may encourage companies to sell shares and make acquisitions.

“Business opportunities for Nomura will grow as it has a competitive sales force and branch franchise,” said Takehito Yamanaka, an analyst at Credit Suisse Group AG in Tokyo. “We’ll see more IPOs and share sales and individual investors will take more risks and buy mutual funds.”

Nomura’s shares fell as much as 3.6 percent to 507 yen and traded at 518 yen as of 9:54 a.m. on the Tokyo Stock Exchange. The benchmark Topix Index gained 0.4 percent.

Estimates Missed

Net income rose 13 percent to 20.1 billion yen ($221 million) for the three months ended Dec. 31 from 17.8 billion yen a year earlier, led by brokerage commissions and trading, Tokyo-based Nomura said in a statement yesterday. The result missed the average 31 billion yen profit estimate of eight analysts surveyed by Bloomberg.

Revenue fell 4.7 percent from a year earlier to 459 billion yen. Investment banking fees dropped 24 percent to 13 billion yen, while brokerage commissions climbed 13 percent to 83.7 billion yen. Trading profit rose 10 percent to 88.2 billion yen.

Shares of Nomura have surged 85 percent since mid-November, when Abe began an election campaign by promising fiscal stimulus and urging the central bank to pursue more aggressive monetary easing to end deflation.

Investors are the most bullish on Japan in more than three years, a survey of Bloomberg users showed Jan. 22. The Nikkei 225 Stock Average (NKY) jumped 17 percent last quarter and closed yesterday at the highest since April 2010.

Chief Executive Officer Koji Nagai, 54, took the post in August after his predecessor Kenichi Watanabe resigned following revelations that staff gave tips on share sales the firm managed. The impact of the scandal will soon fade, said asset manager Mitsushige Akino.

Hottest Market

“Japan is the hottest market in the world now, and corporates are getting more profitable,” said Akino, Tokyo- based chief fund officer at Ichiyoshi Asset Management Co., which oversees about 30 billion yen. “The brokerage may be able to get more mandates in M&A, debt and equity businesses.”

Japanese companies shunned the stock market over the past two years as a record earthquake and Europe’s sovereign debt crisis damped investor sentiment. Share sales in 2011 and 2012 totaled 3.9 trillion yen, less than 2010’s 5 trillion yen, according to data compiled by Bloomberg.

Nomura expects initial public offerings in Japan will reach the highest in six years in 2013. About 60 Japanese companies will announce debut share sales, Masaharu Kambe, head of the IPO department in Japan, said in an interview in January.

Annington Sale

Last quarter’s earnings were aided by a 16 billion yen gain from the sale of Annington Homes Ltd., a U.K. housing estate company. The sale helped the company post a 4.3 billion yen pretax profit abroad, snapping 10 straight quarters of losses from overseas operations.

CEO Nagai has pledged to cut $1 billion of costs that swelled after the firm bought Lehman Brothers Holdings Inc. operations in 2008. The investment bank trimmed payrolls last quarter as part of its cost cutting. The company had 34,098 employees as of Dec. 31, down 717 from three months earlier.

To boost fixed-income and equity businesses, Nomura formed a 26-member global markets executive committee headed by division chief Steve Ashley, an internal memo showed on Jan. 29.

Equity underwriting fees fell 19 percent to 3.4 billion yen last quarter, yesterday’s report showed. Income from managing bond sales dropped 67 percent to 1.5 billion yen. Merger advisory fees slid 16 percent to 6.3 billion yen.

Not all analysts see a turnaround at the Japanese firm.

“Nomura is still facing a tough time expanding its investment banking business globally,” said Futoshi Sasaki, an analyst at Mitsubishi UFJ Morgan Stanley (MS:US) Securities Co. in Tokyo. “Japanese companies have ample cash, so it’s hard to believe they’ll come back to the capital markets for fundraising.”

Nomura was the No. 1 manager of share sales by Japanese companies last quarter, up from second a year earlier, and was also the top-ranked underwriter for 2012, data compiled by Bloomberg show. The bank’s rank for advice on Japanese mergers and acquisitions fell to ninth in the quarter from the top spot a year earlier. It slipped to second for the full year.

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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