A Nomura logo is pictured at their office in the Manhattan borough of New York City, New York, the US. Picture: REUTERS/CARLO ALLEGRI
A Nomura logo is pictured at their office in the Manhattan borough of New York City, New York, the US. Picture: REUTERS/CARLO ALLEGRI

So much for taking on Wall Street. Anyone expecting Nomura Holdings CEO Kentaro Okuda to have put the bank’s overseas misadventures behind it was in for a shock.

Nomura reported its first loss in five quarters on Friday, dragged down by declines in its internationally focused asset management and wholesale banking divisions. Overseas operations sank into the red at the pretax level for the first time in a year.

By contrast, the domestic retail business turned a profit. During the coronavirus pandemic, home was the one place that remained safe for Japan’s largest brokerage.

That should be troubling for investors hoping that Nomura had turned a corner and was poised to strengthen its position after former CEO Koji Nagai’s cost cuts left the company in seemingly solid shape at the turn of the year. Clearly, the Covid-19 outbreak couldn’t have been foreseen.

What’s disturbing is that Nomura failed to soften the blow by generating meaningful trading profits from a quarter of wild volatility, in contrast to peers from Goldman Sachs Group to Deutsche Bank.

It was also outshone by smaller Japanese rival Daiwa Securities Group, which reported a profit for the period.

Flip-flopping era

Okuda, who took over from Nagai at the start of April, has pledged to continue his predecessor’s overhaul, which included significant management restructuring and a 20% reduction in Nomura’s Japanese retail brokerage branches.

Hopes that the major surgery had been completed, which drove a 34% rally in Nomura shares last year, will now have to be discounted. The era of flip-flopping between expansion and retrenchment in its overseas operations may not be over after all.

The ¥34.5bn net loss for the three months through March is all the more surprising given that Nomura has a niche in bond trading, which was a key contributor to the previous quarter’s ¥57.1bn profit. The brokerage’s bond trading revenue dropped to ¥78bn from ¥99.7bn in the December period, though it rose from a year earlier.

CFO Takumi Kitamura said the wholesale business, which houses its bond trading activities, had an uncertain outlook.

So what now for Nomura? Its core domestic retail business looks relatively healthy, despite Japan’s state of emergency closing several branches. The retail division reported pretax income of ¥18.4bn, a more than fivefold increase from a year earlier.

The priority should be on protecting and building its domestic franchise, where Nomura has a strategic advantage. That means continuing to invest in its digital operations. The bank has long been seen as a dinosaur in this area and has been losing business to more nimble online brokers.

Nagai’s $1bn cost-cutting programme is 70% complete, Nomura said. It would make no sense to abandon a revamp that had appeared to be delivering sustainable results at the end of last year.

As for its international business, shareholders could be forgiven for despairing. The brokerage has been trying to put its ill-fated 2008 acquisition of Lehman Brothers’ Asian and European operations behind it for more than a decade. The December quarter has proved yet another false dawn.

• Gopalan is a Bloomberg Opinion columnist covering deals and banking.

Bloomberg

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