October 31, 2018 / 7:16 AM / 17 days ago

UPDATE 2-Nomura swings to Q2 loss on one-off costs, slump in wholesale unit's profits

* Q2 net loss Y11.2 bln vs Y51.9 bln profit a year earlier

* Books Y20 bln charge related to U.S. settlement

* Profits at wholesale and retail divisions tumble (Add CFO’s comments from conference)

By Taiga Uranaka

TOKYO, Oct 31 (Reuters) - Nomura Holdings, Japan’s biggest brokerage and investment bank, posted its first quarterly loss in over two years as it absorbed one-off costs and suffered sliding profits in its key wholesale and retail businesses.

The results highlight Nomura’s struggle to consistently drive profit growth at its key businesses, and contrast with surging profits at top Wall Street rivals such as Goldman Sachs and Morgan Stanley which were helped by strength in stock trading and equity underwriting.

And a third straight quarter of pre-tax losses in its overseas operations show it is unable to stabilise them a decade after buying parts of Lehman Brothers’ business in Europe and Asia in an attempt to expand outside of its domestic stronghold.

Nomura said on Wednesday it clocked a net loss of 11.2 billion yen ($98.90 million) for its second quarter ended in September, versus a 51.9 billion yen profit a year earlier.

It booked over 40 billion yen in charges, including 20 billion for a settlement with U.S. authorities over residential mortgage-backed securities that it had already flagged. The charges also reflected the loss related to closing of an overseas subsidiary.

Brokerage SMBC Nikko Securities had estimated Nomura’s net loss at 2.9 billion yen for the quarter.

Nomura said it does not expect a recurrence of such one-time expenses in the current quarter.

“Still, we recognise profit levels at our retail and wholesale divisions show challenges,” Chief Financial Officer Takumi Kitamura told an earnings briefing.

He said the company is in the process of reallocating resources to strategic focus areas and reining in costs.

Quarterly pre-tax profit at Nomura’s wholesale division, which serves corporations and institutional investors, fell 71 percent from a year earlier to 4.9 billion yen.

And pre-tax profit at its retail division halved year-on-year to 12.2 billion yen as investors became cautious amid falls in emerging market currencies and uncertainty in market conditions, the company said.

OVERSEAS LOSSES

Revenue from Japan rose, driven by interest rates and equity derivatives but Americas and Europe, Middle East and Africa (EMEA) fell due to subdued client activity, the company said.

Losses from Americas and Europe widened from the previous quarter, with Nomura saying the increases reflect inclusion of the one-time charges.

Daiwa Securities Group Inc, Japan’s second-biggest brokerage, reported earlier this week that second-quarter net profit fell 44 percent to 17.7 billion yen, with the retail division hurt by a decline in bond sales and wholesale business weighed down by a fall in revenues from equity and debt underwriting.

Nomura CFO Kitamura said there is growing uncertainty in global markets, affected by factors such as U.S.-China trade war, Brexit and rising tensions in Middle East. “The business environment is getting very difficult. But at a time like this, markets are likely to move. We would like to catch profit opportunities while doing proper risk controls,” he said. ($1 = 113.2500 yen) (Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman)

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