Nomura loss brings underperforming European biz into focus

By BLOOMBERG

TOKYO • Nomura Holdings Inc’s underperforming European business, which saw wider losses in the fiscal second quarter (2Q), may be about to face another reckoning.

CFO Takumi Kitamura told reporters in Tokyo yesterday that he intends to bring the European unit to “an appropriate size”, after those operations lost ¥11.6 billion (RM425.34 million) in the three months ended September.

Japan’s biggest brokerage posted a rare net loss, as revenue at the retail and wholesale businesses declined from a year earlier.

Dealing with Europe, where Nomura has struggled since buying Lehman Brothers Holdings Inc assets 10 years ago, is taking on added urgency as its mainstay domestic retail business flags.

The firm’s stronghold on its home market over the past decade had allowed CEO Koji Nagai, 59, to keep pursuing an overseas expansion despite the failure to produce sustained profits.

Nomura also lost money in the US in the quarter, though that was mainly due to a ¥19.8 billion expense booked as part of a payment to settle a mortgage bond probe stemming from activities before the 2008 financial crisis. Overall pretax losses from abroad totalled ¥32.2 billion, making it tough for Nagai to bring overseas operations back to profit for the full fiscal year.

Kitamura said the firm will continue to redistribute resources away from Europe to the Americas, where profitability is better. “We intend to bring our European businesses slightly to an appropriate size and achieve a balance in terms of manpower, resources and capital.”

Nomura cut hundreds of jobs in Europe in 2016, when it shut much of its stock-trading business. Earlier this year, it let go about 50 workers in London, including some senior traders and business heads.

“They’ve never really achieved their goal of meaningful expansions overseas,” said David Marshall, an analyst with CreditSights Inc in Singapore. “It’s inevitable to pull back from areas where they are not competitive nor have meaningful market share, and focus their resources on the areas that matter to them now.”

Shares of Nomura closed 3.5% higher before the results. The stock has slid 18% this year, more than the benchmark Topix Index’s 9.4% drop.

Nomura’s overall net loss totalled ¥11.2 billion, marking the 2Q of red ink in the past seven years. Retail investor sentiment weakened from the previous quarter, Nomura said, even as Japanese stocks rebounded in the period. Prospects for the business may worsen as this month’s global equity sell-off risks damping confidence further.

On the wholesale front, one bright sign was a pickup in Japanese fixed-income trading after the central bank’s policy tweaks revived activity.

Revenue fell 3% from a year earlier to ¥448.4 billion, trading profit dropped 14%, brokerage commissions slid 12% and investment banking fees declined 30%.