UPDATE 3-Nomura profit falls for 2nd straight quarter after stock rally cools

Tue Jul 29, 2014 8:57am EDT

Related Topics

* Q1 profit down 70 pct to Y20 bln vs Y26 bln analyst view

* Aims to be less dependent on investment trust "churning"

* Daiwa also reports profit decline of 40 pct (Adds comments from analyst and Nomura executive)

By Ritsuko Ando

TOKYO, July 29 (Reuters) - Nomura Holdings Inc reported a second straight quarter of profit decline as investors turned cautious on Japan's economic recovery prospects and held back on stock trading, knocking brokerage commissions far below last year's.

Japan's biggest investment banking and brokerage group enjoyed a spike in fees in 2013 when the pro-growth policies of Prime Minister Shinzo Abe spurred investment and trading activity.

The Nikkei share average rose more than 50 percent over the year, but cooling sentiment toward "Abenomics" then dragged it down by around 7 percent in the first six months of 2014.

Nomura Chief Financial Officer Shigesuke Kashiwagi said prices have been recovering recently.

"In terms of the business environment, we think January-March was a bottom and there should be an improvement since then," Kashiwagi told reporters on Tuesday after Nomura announced earnings.

Lower commission combined with higher retirement-related costs to bring April-June net profit down 70 percent from a year earlier to 19.86 billion yen ($195 million).

That compared with an average estimate of 26 billion yen from four analysts polled by Thomson Reuters SmartEstimate, which gives greater weighting to the historically more accurate analysts.

No.2 brokerage Daiwa Securities Group Inc also reported a drop in fiscal first-quarter profit, of 40 percent to 34.38 billion yen.

Shares in Nomura closed 0.7 percent lower ahead of the earnings announcement. Daiwa's ended 1 percent higher. The Nikkei stock average closed up 0.6 percent.

RETAIL OVERHAUL

Nomura's results highlighted progress in shifting away from "churning" investment trusts - the practice of trying to earn commission fees by encouraging clients to switch to new products.

Chief Executive Koji Nagai - who assumed office in 2012 following an insider trading scandal involving Nomura employees - has instead been pushing for the company to concentrate on growing client assets and recurring revenue.

While quarterly net revenue from its retail business fell 36 percent to 106.9 billion yen, client assets rose 9 percent to 95.3 trillion yen.

"We have been able to confirm that the changes we've been making were the right ones," Kashiwagi said.

In its investment banking business, revenue fell 24 percent to 22.3 billion yen. Jonathan Lewis, senior managing director and co-deputy CFO, said that was due to a temporary slowdown in ECM transactions in Japan but that more deals were in the works.

"It was a slow first quarter. But the pipeline is looking good," he told Reuters.

Nomura is a lead manager in a few initial public offerings expected later this year including casual restaurant chain Skylark and messaging app Line, according to sources.

Lewis also said Nomura was gaining market share in the global fixed-income business as its global peers pull back in an attempt to meet new capital requirements.

"Our fixed-income business is taking market share almost every quarter," he said.

Barclays analyst Azuma Ohno said the challenge for Nomura was to improve its global fixed-income business further, enough to help bolster its bottom line.

Separately, Italy's tax authorities on Monday said they had seized 98 million euros ($132 million) from the British subsidiary of Nomura for alleged fraud.

Kashiwagi declined to comment on the case on Tuesday beyond Nomura's original statement, which stated the company was aware of the matter. ($1 = 101.9700 Japanese Yen) (Editing by Christopher Cushing and Tom Pfeiffer)

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