* 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 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
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
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
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
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.
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
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)