Nomura Holdings Inc. and Daiwa Securities Group Inc., Japan’s largest brokerages, plan to cut costs as the faltering local economy, Europe’s sovereign credit crisis and U.S. debt impasse weigh on earnings.
Nomura plans to trim costs annually at its wholesale unit by about $400 million, the Tokyo-based company said Friday after reporting that a one-time gain boosted first-quarter profit more than sevenfold. Daiwa, whose loss for the three months that ended June 30 widened from a year earlier, said it plans to merge two units and reassign staff to curb expenses.
The securities firms’ overseas units posted their biggest pretax loss in at least five quarters, driven by higher salaries abroad as they seek to compete with Goldman Sachs Group Inc. and Citigroup Inc. Nomura, which bought some Lehman Brothers Holdings Inc. units in 2008, plans to reallocate staff or trim jobs in its wholesale business.
“Starting cost-cutting means Nomura is finally impinging on what has been Lehman’s untouchable legacy,” said Fumiyuki Nakanishi, senior strategist at SMBC Friend Securities Co. in Tokyo. “Japan’s leaders are now restructuring their businesses, signaling that they couldn’t obtain good results overseas despite expectations and they’re even struggling with retail businesses at home.”
Nomura’s net income advanced to ¥17.8 billion for the three months that ended June 30 from ¥2.3 billion a year earlier, the Tokyo-based brokerage said last week. That compared with a ¥13.7 billion average estimate of 11 analysts surveyed by Bloomberg News. Daiwa’s loss widened to ¥9.4 billion from ¥1.2 billion.
Shares of Nomura fell 0.5 percent to ¥376 on Friday, before the earnings were announced, extending the decline this year to 27 percent. Daiwa, which closed last week at ¥336, has slumped 20 percent since the end of 2010, compared with a 19 percent drop in Goldman Sachs and 18 percent for Morgan Stanley.
Nomura’s overseas businesses posted a pretax loss of ¥32.8 billion in the quarter, the biggest in at least five quarters. At Daiwa, the loss was ¥8.2 billion, the most in seven quarters.
Investment banks around the world are struggling to boost earnings as equity markets tumble on increased concern about government debt in Europe and the U.S.
Credit Suisse Group AG plans to cut about 2,000 jobs after second-quarter profit fell 52 percent on lower earnings from trading. Goldman Sachs said last month it will cut about 1,000 jobs as fixed-income revenue dropped. UBS AG scrapped its 2014 profit target and announced cost cuts after second-quarter profit at Switzerland’s largest bank slid 49 percent.
Daiwa plans to integrate an investment banking unit with a brokerage division by March 31 to contain expenses that have climbed as it expands in Asia.
“With Japan’s earthquake, power issues and rise in the yen, as well as the European sovereign-debt crisis and inflation in emerging markets, Daiwa is in an environment that requires caution,” Chief Executive Officer Takashi Hibino said in a statement on its website Friday. “We will ensure a strong business platform by continuing with the restructuring.”
Hibino said in May he plans to reallocate staff from support positions to the sales force to control the roster and boost revenue. About 250 employees out of 2,050 in planning, treasury and system operations have joined Daiwa’s sales force, the company said last week. About 200 investment bankers have been moved to retail sales.
Nomura benefited from a ¥24.3 billion gain on the lump-sum amortization of negative goodwill as it made Nomura Land and Building Co. into a wholly owned unit. The transaction increased its stake in Nomura Real Estate Holdings Inc. to 51 percent from 20 percent.
Revenue climbed 36 percent to ¥427 billion in the three-month period, it said last week. Investment banking fees dropped 32 percent to ¥13.8 billion, the lowest in five quarters. Brokerage commissions slipped 18 percent while trading profit rose 13 percent.
Nomura’s U.S. operations had a pretax profit of ¥501 million, the firm reported. In Europe, the company lost ¥31.7 billion, and in Asia it lost ¥1.5 billion.
The brokerage will continue to hire in the Americas “in a focused manner,” Jesse Bhattal, chief executive officer of Nomura’s wholesale division, said in an interview on Friday. “We will continue to invest a disproportionate share of investment dollars in the U.S.”
The securities firm was No. 23 among managers of global equity transactions last quarter, arranging $1.2 billion in sales, data compiled by Bloomberg show.
The plans to cut costs “shows they couldn’t be globally competitive enough to rival Goldman or UBS three years after acquiring Lehman,” SMBC’s Nakanishi said.
“It also illustrates its domestic business is not getting profitable enough to cover a decline in investment banking and overseas businesses.”
Operations in Japan, which account for more than half of Nomura’s revenue, have suffered as equity underwriting declined following the record earthquake that struck in March.
Domestically, Nomura was selected as a lead underwriter on July 15 for Japan Airlines Co.’s initial public offering. It will compete with Goldman Sachs, Citigroup, Daiwa and SMBC Nikko Securities Inc. to arrange Nikko Asset Management Co.’s initial public offering, the first debut share sale by a major Japanese asset manager in a decade.
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