January 31, 2019 / 7:05 AM / 9 months ago

Nomura reviewing wholesale business after posting biggest loss in a decade

TOKYO (Reuters) - Nomura Holdings has put its wholesale business under review after the segment drove Japan’s biggest brokerage and investment bank to its heaviest quarterly loss in nearly 10 years.

FILE PHOTO - Pedestrians walk past a signboard of Nomura Securities outside its branch in Tokyo, Japan, February 2, 2016. REUTERS/Yuya Shino/File Photo

“We will promptly review our business model. Especially on the wholesale business, we have already begun discussion and we will explain specifics shortly after the fourth-quarter earnings in April,” CFO Takumi Kitamura told reporters at an earnings briefing on Thursday.

The wholesale business serves corporations and institutional investors. Kitamura did not elaborate on the review but said the bank will do further “selection and focus”, a term Japanese companies use that often flags disposal of assets.

Nomura’s struggles highlight the challenges it faces in transforming the bank with the goal of cutting dependence on volatile markets and building up stable revenue flows.

The bank said in a statement its October-December net loss came in at 95.3 billion yen ($876.64 million), down from a profit of 88 billion yen a year earlier and compared with the 30.9 billion yen average profit estimate of two analysts compiled by Reuters.

Nomura said it booked an impairment charge of 81 billion yen during the period. It said the impairment is related to its U.S. securities trading execution company Instinet and Lehman Brothers, the failed Wall Street bank whose Asian and European businesses it bought in 2008.

Impairment is an accounting practice in which companies reduce the value of businesses and other assets recorded on their balance sheets to reflect declines in profitability of the assets. “We eliminated any optimistic view about our wholesale business,” Kitamura said.

The surprise second straight quarterly loss was the steepest since the January-March quarter of 2009 when the bank recorded a 215.8 billion yen loss, reflecting costs to integrate Lehman’s operations.

Under CEO Koji Nagai, Nomura has been working to reduce reliance on global markets business, where the bank and its Wall Street rivals have been hit by weak fixed-income revenues.

“Traditional trading business using our own balance sheet has reached the limit,” Kitamura said.

For the third quarter, Nomura’s wholesale segment recorded a pre-tax loss of 95.9 billion yen, down from a profit of 14 billion yen a year earlier.

Its retail business also suffered a steep profit fall, posting a pre-tax profit of 14 billion yen compared with 31.3 billion a year earlier, as individual investors sat on the sidelines amid turmoil in the market.

Global stock markets slumped in December, weighed down by growing worries about the health of the world economy amid an escalating U.S.-China trade spat.

Japan’s benchmark Nikkei average suffered its first annual loss in seven years in 2018 after logging a nearly three-decade high in October.

SOFTBANK IPO A DOUBLE-EDGED SWORD

Nomura said its equity business got a boost from SoftBank Corp’s $23.5 billion initial public offering last year. Nomura was one of its joint global coordinators, selling about 600 billion yen worth of shares, mostly to Japan’s retail investors.

Japan’s largest IPO brought a bonanza to Nomura’s rivals as well, but ironically, it was also SoftBank that helped cool retail investor sentiment.

“I would not say this is the whole reason, but SoftBank shares, since listing, have not gone above the IPO price of 1,500 yen,” Kitamura said. “A wide range of investors participated in (the IPO) and unfortunately, we are spending our time on following up (on customers) given such share performance.”

Earlier this week, Japan’s second-biggest investment bank Daiwa Securities Group Inc said net profit for its third quarter ended in December fell by nearly 40 percent to 14.1 billion yen, hurt by a plunge in trading revenue in fixed income, currencies and commodities.

Daiwa CFO Mikita Komatsu said the SoftBank IPO helped attract new and dormant clients, noting it sold about 450 billion yen worth of the telecom company’s shares to domestic retail investors.

But SoftBank’s share performance since its market debut in December “is one of the factors that retail clients’ investment sentiment remains weak,” he said.

($1 = 108.7100 yen)

Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman

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