Pointers at Glance
- Nomura Holdings, Japan’s largest investment bank, suffered an $850 million market value loss due to its first-quarter earnings slump. Its wholesale division reported a second consecutive quarterly loss of 14.2 billion yen ($106 million) pre-tax.
- The bank is facing ongoing struggles to establish stable revenue sources, particularly in its M&A advisory business.
Nomura Holdings, Japan’s biggest investment bank, and brokerage, saw a market value loss of around $850 million on Thursday, following its first-quarter earnings slump that raised concerns about the bank’s ability to become a global force in investment banking. The bank’s shares dropped by over 7%, marking the biggest daily percentage decline in two years.
The results highlighted the bank’s ongoing struggles to establish stable revenue sources, particularly in its mergers and acquisitions (M&A) advisory business, and raised concerns about a global banking crisis.
CEO’s Mid-term Plan to Increase Pre-tax Income by 90% in Three Years Faces Hurdles as Global Banking Crisis Looms
Nomura’s wholesale division, which houses its investment banking and trading businesses, reported its second consecutive quarterly market value loss at 14.2 billion yen ($106 million) pre-tax due to falling dealmaking fees and rising costs, with global inflation and a weaker yen contributing to the downturn.
While CEO Kentaro Okuda’s mid-term plan announced last year called for an increase of up to 90% in annual pre-tax income from its three core divisions – retail, wholesale, and investment management – in three years by boosting advisory services, the bank has struggled to diversify and increase stable revenue sources.
Nomura Holdings’ CFO, Takumi Kitamura, stated that the current quarter had a weak start for the wholesale business due to low trading flows. The bank will reduce costs through restructuring while striving to achieve revenue growth.
However, investors are becoming increasingly cautious about volatile markets as the banking crisis that began with the collapse of Silicon Valley Bank spreads to Europe, with the sale of Credit Suisse Group AG to its Swiss rival UBS Group AG.
Nomura’s cash cow domestic retail business is also facing pressure due to competition to lower stock commission fees from individual investors. Rating agency Moody’s Japan senior analyst, Tomoya Suzuki, wrote in a report that Moody’s has a negative outlook on Nomura Holdings’ rating, “reflecting structural challenges to the company’s profitability in the domestic retail segment.”
CEO Okuda has been eager to change the bank’s troubled history of occasional major financial hits at its wholesale division, including the $2.9 billion market value loss from the collapse of US investment fund Archegos, which has put a brake on the wholesale business over the past two years.