Nomura Holdings Inc. plans to reduce costs more aggressively after it reported a year-over-year decline in pretax profits across all three business segments in the quarter ended Sept. 30.
Japan's largest brokerage and investment banker was hard hit by global recessionary pressure, rising interest rates and volatile markets. The pretax profit of its retail operation fell most among all segments in the fiscal second quarter, down 68% from a year ago, according to the company's Nov. 2 earnings statement. It was followed by a 63% year-over-year decline at its investment management segment. Its wholesale division posted a 19% drop in pretax profit in the same period.
"We’ve got to work on cost reduction proactively while we have to boost income," Nomura CFO Takumi Kitamura said during an online conference. Kitamura did not discuss cost-cutting targets.
Nomura said its cost-to-income ratio remained high, at 90% in the July-to-September period.
A cost-to-income ratio of 90% for the last quarter is "clearly a problem," Michael Makdad, an analyst at Morningstar said. "Given that it can't just wait and assume that market conditions will fix the expense ratio, Nomura will try to control costs without hurting investments needed for future growth. If market conditions stay sluggish for more quarters, I think its focus on cost cutting would intensify later."
Due to an absence of sizable provisions in the reporting quarter, Nomura's net profit in the fiscal second quarter rose sharply to ￥16.8 billion from ￥3.2 billion a year ago. In the same period of 2021, the company booked a surprise ¥39 billion provision related to legacy transactions from before the global financial crisis in 2007 and 2008 while also reeling from losses related to the collapse of U.S. family office Archegos Capital.
"The latest results are not at satisfactory levels as the market environment is uncertain," Kitamura said.
Nomura's retail business in the last quarter came under pressure as "investors remained on the sidelines," leading to a drop in sales of stocks, bonds, investment trusts and discretionary investments, Kitamura said.
Its assets under management also shrank 4.4% to ￥64.8 trillion from a year earlier, in what was the third straight quarter of contraction. Meanwhile, Nomura shored up its alternative investments for higher returns, increasing assets in this category to ￥1.2 trillion as of Sept. 30 from ￥698 billion a year ago.
A relatively smaller decline in pretax profit in its wholesale business was due to growth of advisory fees from M&A deals in Japan, other Asian countries and Europe, the company said.
Market volatility pushed Nomura's risk-weighted assets to ￥17.19 trillion as of Sept. 30, compared to ￥16.89 trillion as of June-end and ￥15.83 trillion as of March-end. "We'll pay careful attention to risk control," Kitamura said.
As of Nov. 1, US$1 was equivalent to ￥148.09.
