CORRECTED-UPDATE 2-Nomura returns Q2 profit on fixed income gains

Mon Oct 29, 2012 9:43am EDT

(Corrects para 4 to say net revenue in fixed income (not profit) and para 5 to say the wholesale division (not fixed income business) generated 137.1 billion yen in net revenue (not revenue).)

* July-Sept net profit 2.81 bln yen, vs 5.7 bln yen consensus

* Boosted by gains in fixed income, mirrors results at U.S. peers

* Wholesale division swings to profit from year earlier loss

* Nomura lost some business due to insider trading scandal

TOKYO, Oct 29 (Reuters) - Nomura Holdings, Japan's largest investment bank, posted its fourth straight quarterly profit on Monday as an upswing in its fixed income operations helped it counter weak equity markets and the fallout from an insider trading probe.

Nomura, whose top competitor in Japan is Daiwa Securities Group, reported on Monday a net profit of 2.81 billion yen ($35.3 million) for the July-September second quarter, against a loss of 46.09 billion yen in the same period last year. The consensus of eight analysts was for a profit of 5.7 billion yen.

Nomura's results were supported by a boost in bond trading and other fixed income products, a major factor bolstering quarterly earnings at U.S. banks including Morgan Stanley and JP Morgan Chase & Co.

Net revenue in fixed income operations doubled to 88.6 billion yen from a year earlier, helping Nomura's wholesale division swing to a modest profit of 200 million yen from a year earlier 70.7 billion yen loss. The wholesale business includes investment banking.

The wholesale division generated 137.1 billion yen in net revenue, a 68 percent increase from the same year-earlier period. That helped offset the drag from Japan's sluggish stock market, reflected in a 4 percent slide in net revenue from equity trading.

The benchmark Nikkei average fell 1.5 percent during July-September, while turnover on the first section of the Tokyo Stock Exchange slumped 12 percent from April-June.

COST CUTTING

Nomura also lost underwriting business due to an insider trading scandal that triggered a shake-up of top management. In the most high-profile case, it was relegated to a more junior role on the $8.5 billion initial public offering of Japan Airlines, the world's second-largest IPO of 2012.

Following a review by newly appointed Chief Executive Koji Nagai, the company announced plans in August to chop an additional $1 billion in costs in its second major restructuring since it embarked on an ill-fated overseas expansion through the acquisition of parts of Lehman Brothers in 2008.

Nomura Chief Financial Officer Junko Nakagawa told a media briefing the real effect of the cost cutting plan would be seen by the January-March quarter or at the beginning of the 2013 financial year starting in April.

The cuts will centre on its equities and investment banking businesses overseas. Nearly half the savings will come from Europe, where Nomura has lost nearly $1 billion in the past year as the region stumbles through the sovereign debt crisis.

Nagai wants to focus more on fast-growing markets in Asia, although he acknowledged in a Reuters interview last month that it could take two to three years before Nomura is in a position to generate significant profits in the region.

Nomura does not give annual forecasts. Analysts on average expect net profit to come to 58 billion yen in the year to March 2013, according to 11 polled by Thomson Reuters, up from the 11.6 billion yen profit logged in the previous year. (Reporting by Nathan Layne, Junko Fujita and Emi Emoto; Editing by Neil Fullick)