(Recasts, adds comment, details throughout)
By Makiko Yamazaki and Mariko Katsumura
TOKYO, April 27 (Reuters) - Japan's Nomura Holdings Inc saw about $850 million wiped off its market value on
Thursday as its latest earnings slump showed it remains a long
way off CEO Kentaro Okuda's goal of finally making the bank a
global force in investment banking.
Shares in Japan's biggest investment bank and brokerage
dropped more than 7%, its biggest daily percentage decline in
two years, the day after it said first-quarter profit tumbled by
three-quarters, exacerbating worries about a global banking
crisis.
The results underscored that Nomura is still far from its
target of enhancing stable revenue sources, such as mergers and
acquisitions (M&A) advisory, and the bank flagged cost cuts up
ahead.
The investment bank has had a troubled history of occasional
major financial hits at its wholesale division, including a $2.9
billion loss from the collapse of U.S. investment fund Archegos,
which CEO Okuda has been eager to change since he took the helm
in 2020.
Nomura's wholesale division, which houses its investment
banking and trading businesses, reported its second consecutive
quarterly loss, at 14.2 billion yen ($106 million) pre-tax, as
dealmaking fees plunged and global inflation and a weaker yen
boosted costs.
"If Nomura embarks on cost cutting in wholesale now when
rivals are doing reasonably well, it fears that it may hurt its
franchise," Morningstar analyst Michael Makdad said. "But I
think the firm may not have a choice."
Under Okuda's helm, Nomura's wholesale business unit had
initially emerged as a key profit driver, thanks to an overhaul
that included $1 billion in cost cuts and scaling back some of
its lower growth business in Europe, as well as a favourable
market environment.
But the Archegos loss put a brake on the wholesale business
two years ago, and the current global banking turmoil clouds
prospects.
Chief Financial Officer Takumi Kitamura said on Wednesday
that the current quarter got off to a weak start for the
wholesale business due to low trading flows.
He also said the cost ratio at the division had been high as
revenue struggled to grow. "We will reduce costs through
restructuring, while also striving to achieve revenue growth,"
he said.
Investors have grown more cautious about volatile markets as
a banking crisis that began with the collapse of Silicon Valley
Bank spread to Europe with the sale of Credit Suisse Group AG to its Swiss rival UBS Group AG .
CEO Okuda's mid-term plan, announced last year, calls
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.
Kitamura reiterated on Wednesday Nomura needs to diversify
and increase stable revenue sources. "We want to expand
businesses that do not consume large (capital) resources, such
as M&A advisory," Kitamura said.
Meanwhile, its cash cow domestic retail business is
increasing facing pressure due to competition to lower stock
commission fees from individual investors.
Moody's has a negative outlook on Nomura Holdings' rating,
"reflecting structural challenges to the company's profitability
in the domestic retail segment," ratings agency Moody's Japan
senior analyst Tomoya Suzuki wrote in a report.
($1 = 133.6600 yen)
(Reporting by Mariko Katsumura and Makiko Yamazaki; Additional
reporting by Noriyuki Hirata, Tom Westbrook and Ankur Banerjee;
Editing by Jacqueline Wong, Lincoln Feast, Sonali Paul and
Kenneth Maxwell)
