* Q4 profit seen by analysts at 14.9 bln yen
* Stock and fixed income trading, mutual fund sales to
provide boost
* Insider trading probe in Japan seen as overhang on brokers
By Nathan Layne and Emi Emoto
TOKYO, April 27 (Reuters) – Nomura Holdings is
expected to post on Friday a second straight quarterly profit
and highlight a handful of overseas deals that signal progress
in its strategy to expand its business beyond the home market.
Japan’s top investment bank remains vulnerable to a further
pullback in the Nikkei stock average, which has slipped 5
percent since the start of April, and faces the risk of
sanctions in an ongoing insider-trading probe.
But the January-March fiscal fourth-quarter results should
show a bank that has stabilised after a rocky year when heavy
losses overseas prompted it to launch a $1.2 billion
cost-cutting plan and Moody’s to cut its credit rating to one
notch above junk.
Nomura is expected to book a quarterly net profit of 14.9
billion yen ($183 million), according to the average of 7
analysts surveyed by Reuters. That’s roughly on par with
October-December, when it earned 17.8 billion yen. It will
announce the results after the Tokyo market close at 0600 GMT.
“Markets have given them a boost and you’ve got the
cost-cutting which is starting to impact the P&L.; Nomura is on
an improving trend, albeit slowly,” said Makarim Salman, head of
Japan financials research at Jefferies in Tokyo.
Nomura has been given a boost by a recent increase in
trading commissions, with daily turnover on the Tokyo Stock
Exchange rebounding to above 1.5 trillion yen in February and
March from below 1 trillion yen in December, an 8-year low.
The quarterly profit also reflects an uptick in sales of
mutual funds through banks and its nationwide network of 179
branches, including 300 billion yen alone for one Australian
bond fund launched by its asset management arm.
Analysts also predict a steady showing from its fixed income
operations, largely echoing results from Credit Suisse
, Goldman Sachs and some other U.S. banks.
Overall net trading gains are expected to be on par or slightly
lower than the prior quarter’s 80 billion yen.
But like other global investment banks, Nomura has dialed
back its risk-taking in the wake of the European debt crisis and
to prepare for tougher capital requirements and regulatory
restrictions on proprietary trading.
That could hinder the efforts of CEO Kenichi Watanabe to
address its relatively weak earnings power. Nomura’s
return-on-equity will come to around 3 percent for the latest
quarter, compared with an annualised 12.2 percent at Goldman
Sachs.
After a blistering rally in the first three months of the
year, investors are once again focused on the perceived limits
to Nomura’s earnings potential. The stock is trading at 336 yen,
well off the 11-month high of 417 hit on March 19.
“Foreign investors are moving quickly to take profits,” said
a brokerage sector analyst who just returned from a marketing
trip overseas. “I confirmed that long-only overseas investors
are not looking to increase their holdings of brokerage stocks.”
PROMISING SIGNS
Nomura will likely use the results to highlight mandates
recently secured in a handful of deals which show it is gaining
some traction in an overseas expansion built on the purchase of
the European and Asian assets of Lehman Brothers in 2008.
Those contracts include advising mining group Xstrata
on its mega-merger with commodities trader Glencore
, and serving as joint bookrunner on Spanish bank
Bankinter’s 1.0 billion euro bond in March.
So far in 2012 Nomura ranks ninth globally for advising on
mergers and acquisitions, up from 13th in 2011 and a lowly 32nd
in 2007 before the Lehman purchase, Thomson Reuters data shows.
It remains the top investment bank on Japan-related deals.
“This is part of the slow but sure incremental revenue gains
in a number of lines of business,” Salman of Jefferies said.
“M&A; is an area that they are focused on quite aggressively,
first getting some Japanese cross-border deals and then now
growing their participation in European cross-border deals.”
A rise in investment banking fees is one factor underpinning
expectations Nomura will have its best year in six in the
current financial year to March 2013. The consensus is for a net
profit of 86 billion yen from the average of 11 analysts.
Daiwa Securities Group is also thought to be on a
recovery path, with analysts predicting a return to profit this
year after two years in the red, helped by its recent move to
scale back overseas, and firmer Japanese stocks.
But a probe by the Securities and Exchange Surveillance
Commission (SESC) into insider trading, launched in 2010 amid
suspicious trading around a string of public stock offerings, is
seen as a risk for all major brokers.
On Wednesday the regulator sent officials to Nomura’s
offices in an escalation of its investigation into the broker’s
suspected involvement in leaking inside information, sources
with knowledge of the matter told Reuters.
The probe has already impacted the third-largest broker,
Nikko SMBC Securities, which has been ordered to bolster
internal controls after it was found that its retail staff
tipped off clients about the public offering of its parent bank.
In addition to official sanctions, they risk being shunned
by institutional investors who may have internal rules that
restrict trading with brokers in breach of regulations.
In a sign of the potential impact, a state-backed fund
preparing for the IPO of Japan Airlines is now considering
whether to drop Nikko SMBC as an underwriter because of its
infraction, a source with knowledge of that situation said.
A spokesman for the fund, the Enterprise Turnaround
Initiative Corporation of Japan, said it was considering how to
deal with the matter. A spokesman for Nikko SMBC declined to
comment.
