December 6, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Nomura Profit Falls 76% as Trading, Investment Banking Falters

(Bloomberg) — Nomura Holdings Inc.’s profit fell for the third straight year since Kentaro Okuda became its chief executive officer, as market turmoil adds to headwinds for his turnaround.

Muted client sentiment and lackluster dealmaking weighed on revenue at the Japanese brokerage while its overseas operations have now lost money in 10 out of the past 12 years, according to filings.

Meanwhile, it emerged the firm’s Frankfurt offices are being searched as part of a probe into the Cum-Ex tax dividend scandal.

“Nomura’s materially weaker profitability in the fiscal year ended March 2023 is credit negative,” said Tomoya Suzuki, a senior analyst at Moody’s Investors Service said. “Rapidly rising interest rates and geopolitical tensions as well as US regional bank failures dampened investor sentiment.”

Net income dropped 35% to 92.8 billion yen ($695 million) in the year ended March 31, Japan’s largest brokerage said in a statement Wednesday. Fourth-quarter profit slid 76% to 7.4 billion yen, missing analysts’ estimates. The firm said it plans to buy back as much as 20 billion yen in shares, less than it announced a year ago. 

The past year was very tough for investment banking, though deal origination should recover later this year, Chief Financial Officer Takumi Kitamura said at a briefing. 

Nomura is grappling with challenges that include historic market moves triggered by troubles at Silicon Valley Bank and Credit Suisse Group AG. While the turmoil is helping to fuel trading activity at some firms, it hit investor sentiment just as Wall Street was already in retrenchment mode with interest rates rising and the economic outlook becoming uncertain. 

A surge in volatility caused Nomura’s fixed-income business to slow in March, the firm said without elaborating. It was an otherwise strong quarter for the unit that surpassed several Wall Street rivals. 

Nomura has slashed its entertainment budget for executives, people familiar with the matter said, as it steps up efforts to rein in costs. The firm’s rates traders bounced back from market volatility fueled by last month’s banking industry woes after the turmoil initially inflicted modest losses, the head of Nomura’s investment banking and trading businesses said in an interview several weeks ago.

Shares of Nomura have gained 7.1% this year, outperforming the 0.8% decline in the Topix Banks Index.

Read more: Nomura Hunts for New Manhattan Offices as Firm Seeks to Downsize

Nomura’s revenues fell 6% at the global markets unit, in line with the average decline in trading at five of the biggest Wall Street lenders. Fixed income rose 9% despite the turbulence in March, while equities was down 21%. 

One pocket of concern for big investment banks remains the muted activity in capital markets as companies seek to ride out volatility, which has depressed fees. Nomura’s investment banking revenue slipped 20% in the quarter.

Christopher Willcox took the helm of the wholesale arm in October, overseeing a division that spans trading, underwriting and advice on mergers. CEO Okuda wants the business to generate more stable revenue from advisory and wealth management services while reducing reliance on volatile trading — a tough task as dealmaking slumps and competition to serve rich clients heats up.

Elsewhere, the brokerage decided against selling Credit Suisse’s AT1 bonds to individual retail clients because they could become worthless under some conditions, Kitamura said. Wealthy clients of rival Mitsubishi UFJ Financial Group Inc.’s joint venture with Morgan Stanley lost more than $700 million on the debt.

–With assistance from Taiga Uranaka.

(Updates with Nomura’s shares in the 10th paragraph.)

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