TOKYO Nomura Holdings (8604.T), Japan's biggest investment banking and brokerage group, reported its first profit decline in seven quarters as waning enthusiasm over Prime Minister Shinzo Abe's economic stimulus policies brought down stock trading volumes.
Nomura and second-placed Daiwa Securities Group (8601.T) processed a surge of transactions last year as optimism over "Abenomics", aimed at ending a decade of deflation, helped the Nikkei stock average .N225 rise over 50 percent.
But many who invested heavily grew impatient for more drastic structural reform, leading to fewer trades and a decline of around 9 percent in the benchmark in the first three months of 2014, investors and analysts said.
Net profit for January-March fell 26 percent from a year earlier to 61.3 billion yen ($597.76 million), Nomura said in a statement on Wednesday, although that beat the 41 billion yen mean estimate of five analysts polled by Thomson Reuters.
Chief Financial Officer Shigesuke Kashiwagi said investors appeared to be seeking more concrete indications of economic recovery, and assurance the economy can withstand the impact of a sales tax hike on April 1.
"If an improvement in corporate profits becomes clear, and employment shows further signs of recovering, then I think we can see a more positive impact from the macro environment," Kashiwagi told a news conference.
Even with the quarterly decline, profit for the fiscal year to March 31 doubled to 213.6 billion yen, the highest since the year to March 2006. Earnings per share also roughly doubled to 55.8 yen, beating Nomura's target of 50 yen by March 2016.
Nomura on Wednesday also said it would repurchase 100 million shares, or 2.6 percent of outstanding stock, of which 44 million will be set aside for investors who exercise stock options - or rights to buy stocks.
Deutsche Bank analyst Masao Muraki said the buyback amount - compared with last year's 40 million bought for stock options - was much bigger than he expected and showed the company is intent on improving returns on shareholder equity.
He forecast Nomura's shares, which have fallen almost 30 percent since the start of the year, to rise in reaction to the buyback. They closed 2.7 percent lower ahead of the earnings release versus a 0.1 percent gain in the benchmark.
Nomura earns more than half of its annual profit from retail or individual investors, in contrast to global peers such as Goldman Sachs Group Inc (GS.N) who primarily focus on wholesale or corporate customers.
In the fourth quarter, weak investor sentiment pushed pretax profit at its retail division down 59 percent. The drop was also brought about by a decline in new mutual funds on offer, as Nomura shifted resources to longer-term asset management services to cater to Japan's ageing population.
Profit in Nomura's wholesale business - which includes overseas as well as investment banking operations - fell 6 percent from a year earlier but rose 20 percent from the previous quarter thanks to growth in its fixed income business.
Nomura peer Daiwa, which is more dependent on domestic retail clients, also on Wednesday reported a 31 percent fall in fourth-quarter net profit to 33.2 billion yen, versus the 30.7 billion yen mean estimate of two analysts. Daiwa's shares closed beforehand down 2.2 percent.
Daiwa CFO Mikita Komatsu said investors, particularly those outside Japan, wanted the government to follow up on promises of reform with policies including a reduction in corporate taxes.
"There's a demand for something reasonably specific," he said. "I hope there will be change - change that's noticeable."
Nomura's Kashiwagi said investors also expected the Bank of Japan (BOJ) to embark on further monetary easing.
"I personally understand the BOJ has done all it can since last April. But they are expecting an additional message to the market," he said.
($1 = 102.5500 Japanese Yen)
(Editing by Christopher Cushing)