Nomura Faces Loss on Trading, Investment Banking

July 26 (Bloomberg)--Nomura Holdings Inc., Japan’s biggest brokerage, may report its first loss in five quarters this week on a slump in trading and investment banking earnings, according to analysts. The company will probably report a loss of 334 million yen ($3.8 million) for the three months ended June 30, compared with a profit of 11.4 billion yen a year earlier, according to the average of four estimates in a survey by Bloomberg News. Forecasts ranged from a profit of 2.2 billion yen to a loss of 3.8 billion yen.

Swings in stock and bond markets and signs of economic headwinds in the U.S., Europe and China have deterred clients from trading and making share sales, crimping earnings at global rivals including Goldman Sachs Group Inc. and Credit Suisse Group AG. Chief Executive Officer Kenichi Watanabe has also been hurt by defections of former managers from Lehman Brothers Holdings Inc. “The company needs to gain more market share in the investment-banking business by expanding its U.S. operation to boost revenue,” said Wataru Kasatani, a senior analyst at MDAM Asset Management Co. in Tokyo, which oversees about $2.5 billion in Japanese stocks. “It is overshadowed by its overseas rivals and its smaller revenue means it has a lower break-even point.” Nomura is scheduled to announce first-quarter earnings on July 30. Keiko Sugai, a spokeswoman for the Tokyo-based company, declined to comment.

‘Severe Market’

The firm, which last posted a loss in the three months ended March 31, 2009, as staff costs doubled on the acquisition of businesses from Lehman Brothers in Asia and Europe, hasn’t made a forecast for quarterly or full-year earnings. The stock has slumped 30 percent this year, more than the Topix Securities index’s 26 percent decline and a drop of 6.7 percent for Japan’s benchmark Topix gauge. Nomura rose 1.7 percent to 477 yen at 10:39 a.m. in Tokyo today. Investment banking fees probably totaled about 19 billion yen for the quarter, compared with 29.7 billion yen a year earlier, according to a report by Tokai Tokyo Financial Holdings Inc. on July 20. Trading profit may have more than halved to about 56 billion yen from 121.1 billion yen, said Tokai Tokyo, which estimates Nomura may post a loss of 3.8 billion yen.

“Nomura faced a very severe market,” said Tatsuo Majima, a Tokyo-based analyst at Tokai. “Its domestic business remained relatively strong, but the trading business deteriorated.” Majima said the sovereign debt crisis in Europe crimped trading and deal making as investors sought to avoid risk.

Daiwa Securities

Domestic rival Daiwa Securities Group Inc., Japan’s second- largest brokerage, is scheduled to announce its first quarter earnings today. The Tokyo-based company will probably post a loss of 4.7 billion yen, according to the average estimate of four analysts surveyed by Bloomberg News. That compares with profit of 17.9 billion yen of profit a year earlier. Daiwa Chief Executive Officer Shigeharu Suzuki is trying to expand broking and investment banking in Asia to fill the gap left after dissolving a 10-year-old joint venture with Sumitomo Mitsui Financial Group Inc. in December. The stock rose 0.8 percent to 377 yen at 10:39 a.m. in Tokyo. Nomura underwrote 202.4 billion yen of share sales in Japan for the quarter, compared with 553.9 billion yen a year earlier when it sold shares for Sumitomo Mitsui, according to data compiled by Bloomberg. Nomura was ranked 19th in advising global mergers and acquisitions for the quarter, according to data compiled by Bloomberg. It was the No. 10 underwriter for global equity offering.

Goldman Sachs

Goldman Sachs on July 20 said second-quarter profit plunged 82 percent to the lowest level since the end of 2008 as trading revenue declined more than analysts estimated. Net income fell to $613 million from $3.44 billion a year ago as overall revenue dropped to 36 percent to $8.84 billion. Credit Suisse, Switzerland’s second-largest bank, reported a drop in profit at its investment banking unit in the second quarter as trading revenue slumped amid Europe’s sovereign debt crisis. Pretax earnings at the investment banking division slid 53 percent while net income rose 1.4 percent to 1.59 billion francs ($1.5 billion), buoyed by a tax credit and gains on the company’s own debt.

Nomura plans to offer research coverage for 600 companies in the U.S. in a bid to boost revenue from the world’s biggest equity market, it told investors in May. It has already increased fixed-income division employees in the region to more than 270 from 50 and is investing 250 billion yen to expand in the U.S. Watanabe in April told 550 managers at the company he aims to transform the brokerage into a global financial firm.