Nomura Profit Outlook Dims as CEO Flags More Wholesale Weakness

(Bloomberg) -- Nomura Holdings Inc. said the struggles in its loss-making wholesale business stretched into the current quarter, signaling that the division remains a drag on profit as its retail operation also falters.

After getting off to a good start in October, wholesale client activity “dropped steeply in November for both individual investors and institutional investors,” Chief Executive Officer Koji Nagai said Tuesday in a presentation to investors. “We can’t be optimistic about our profit environment for the third quarter.”

The remarks damp hopes that Nomura is getting back on track after posting a net loss in the fiscal second quarter ended September. Weakening investor sentiment at home is compounding the woes of Japan’s biggest brokerage, which has struggled to sustain profitability abroad for years, particularly in Europe.

Nagai said the firm will reduce expenses at its retail division by 10 percent over the next three years, part of a 60 billion yen ($530 million) cost-cutting plan unveiled a year ago. The firm will review branches with overlapping coverage in Japan’s metropolitan areas amid changing demographics, the presentation showed.

Retail profits have been declining as revenue from brokerage commissions falls and costs rise. “We will put the knife into our rigid cost structure by reviewing every resource without creating any sanctuary,” Nagai told the investors in Tokyo.

Nomura will also reduce capital held by its U.K. unit to $3 billion from $5 billion as London transitions from being a global booking hub to one that just serves Europe, the Middle East and Africa. Capital will be reallocated to units that serve “growth areas” in the U.S., Asia and Japan, it said.

The Japanese firm’s wholesale business -- made up of investment banking and global markets -- lost 2.5 billion yen before taxes in the fiscal first half, as fixed income revenue fell.

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