Go Away, Reddit Rage. Nomura Has the Salaryman
(Bloomberg Opinion) -- Pandemic boredom has made tons of money for Wall Street. Of late, though, the ennui of work-from-home trading has given way to rage. The investing industry is suddenly terrified of becoming Reddit roadkill. Luckily for Japan’s largest broker, its reliable retail clients aren’t interested in crushing short sellers. They’re too busy saving the world.
Or so it appears from the December quarter earnings of Nomura Holdings Inc. During those three months, the retail business, which accounts for a sixth of pretax income, surged 61% from a year earlier. Profit from the slightly smaller asset management unit jumped 140%. Overall net income rose 72% from a year earlier to 98.4 billion yen ($937 million).
While the rest of us were consumed by lockdown angst and vaccine anxiety, Japanese investors — the fabled Mrs. Watanabe is nowadays more likely to be a middle-age salaryman — were inoculating our post-pandemic future.
The Nomura BlackRock Circular Economy Stock Fund, which went on sale last August to improve “the sustainability of resource usage,” ended December with more than 132 billion yen in assets, a 37% jump during the quarter. Throw in funds that invest in water and sanitation and advanced medical care, and Nomura’s asset management business is sitting on a rapidly growing, $4.5 billion asset book addressing social and environmental concerns, based on a partial list of products highlighted on its website.
The wholesale business — Nomura’s third pillar after retail and asset management — accounts for almost three-fifths of profit. The category recorded a 78% increase in pretax income. Within wholesale, investment banking had a great quarter as Japan drove a worldwide mergers-and-acquisitions boom.
Large mandates like the $40 billion NTT Docomo Inc. buyout saw Nomura take the 11th position last year in global M&A advisory standings, its best showing ever. Additionally, bankers made full use of surging markets to hawk securities. A threefold jump from a year earlier in Japan equity offerings, a 44% surge in domestic corporate bond sales, and a small increase in the financing it arranged for municipalities saw Nomura in the top three in each market during the quarter, according to Bloomberg league tables. Even in the U.S., where it's a much smaller player, the investment bank did twice as much business selling equities and equity-linked products in the last quarter than a year earlier.
But the trading part of the wholesale business is starting to normalize. This was only to be expected. Major central banks responded to the pandemic with unprecedented stimulus, and institutional clients just couldn’t stop betting on fixed-income markets. That bumper showing, which led to a profit bulge in the June quarter, is starting to recede into the rearview mirror for U.S. and European banks, too. It’s when the sizzle goes out of equity trading that the sheen around the Japanese broker may start to fade.
In preparation, Chief Executive Officer Kentaro Okuda is making Nomura leaner. A 140 billion yen, three-year cost-cutting program is running a year ahead of its March 2022 target. He’s also seeking a five-year, fivefold increase in international wealth management, for which Okuda is hiring aggressively in Singapore and Hong Kong. Will that be enough? Maybe not. Shareholders will probably start looking for another buyback offer, even though Nomura has just finished trimming its equity by 7.4% after repurchasing shares worth 150 billion yen. This fiscal year’s solid 15.1% return on equity has whetted investors’ appetite for more.
Covid-19 has made the last 13 months an unusual period in the history of the industry. When Nomura begins its next financial year in April, it may have to adjust to more normal times. Even if the wholesale business is hit by a bout of post-pandemic fatigue, the Japanese salaryman will hopefully still remain excited by the idea of saving the world.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
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