UPDATE 2-Bond slump drags on Nomura's profits, stirs overseas income worries

* Quarterly profit drops for first time in over a year

* Fall in bond trading decimates international pretax profit

* Expect international unit to become livelier -CFO

* Retail arm a bright spot, pretax profit up 77 pct y/y (Writes through; adds CFO and analyst comment)

By Thomas Wilson

TOKYO, Oct 30 (Reuters) - Japan’s Nomura Holdings Inc posted its first fall in quarterly profit in more than a year due to a slump in bond trading, highlighting the brokerage’s vulnerability to world markets as it looks for more sustainable overseas income.

Thin trading volume among Nomura’s overseas corporate and institutional clients was to blame for the drop in fixed-income trading, mirroring a trend across Wall Street banks and putting the brakes on a renaissance at the firm’s international arm, which saw its profits almost wiped out in the second quarter.

Overall net profit at Nomura, Japan’s biggest brokerage and investment banking group, fell 15 percent from a year ago to 51.9 billion yen ($457 million) for the quarter ended September, the first such drop in five quarters.

That was also below an average estimate of 60.5 billion yen from two analysts polled by Thomson Reuters.

However, Nomura Chief Financial Officer Takumi Kitamura told an earnings briefing on Monday that he expects profits at the overseas unit “to become livelier as market volatility and moves by market participants increase”.

“But one area I see a strong base is that we won’t take unnecessary risks, and the thoroughness of our risk culture and cost controls,” the CFO added.

Nomura started a painful restructuring process 18 months ago aimed at lowering costs and shifting the overseas arm’s focus towards advisory services from markets-based trading. The segment managed to eke out its first profit in seven years in the year ended March.

But in the latest quarter, pretax profits for the division fell 96 percent to 0.9 billion yen, hurt by a slump in bond trading in the Americas, Europe, Africa and the Middle East.


Subdued market volatility has crimped bond trading revenue globally, with major Wall Street banks reporting bond trading declines of 16-27 percent for their recent quarters.

The weak fixed-income trading comes at a time when Nomura is returning to its overseas expansion mode. This year, it has been boosting its Americas investment banking business with senior bankers as it anticipates more deals in the United States by Japanese and U.S. companies.

Nomura’s overseas segment includes Lehman Brothers’ equities and investment banking business in Europe and Asia that Nomura bought in 2008 at the height of the global financial crisis in a bid to expand from its domestic stronghold.

“The viability of the overseas operations is once again in question,” said Raymond Spencer, an analyst at Moody’s in Tokyo.

“Over the long-term (it) will be very much dependent on their cost discipline.”

However, a bright spot for Nomura was its domestic-focused retail arm, which posted its second straight quarter of gains, after reporting its lowest profit in five years in the twelve months ended March.

Pretax profit for the division soared 77 percent as individual investors piled into share sales like Japan Post Holdings 1.3 trillion yen public offering - the world’s second biggest this year.

Nomura said it would buy back up to 1.8 percent of its stock for as much as 50 billion yen. ($1 = 113.6600 yen) (Reporting by Thomas Wilson; Editing by Himani Sarkar)