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Nomura may get trading boost from volatile markets

But the boom may not hold, with US banks warning of slowing trade volumes

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Nomura CEO Kentaro Okuda, who took the job on April 1, has vowed to persist with an overhaul that centres on bolstering advisory business for companies and revamping the struggling domestic retail franchise.

Tokyo

NOMURA Holdings probably joined its Wall Street rivals in benefiting from a jump in trading during last quarter's wild market swings, masking the challenge for its new chief as the novel coronavirus pandemic hammers the economy.

Japan's biggest brokerage is likely to post a fourth straight quarter of profit growth on Friday, helping full-year earnings climb to the highest in more than a decade, analysts at Jefferies and Mitsubishi UFJ Morgan Stanley Securities predict. The trading boost is expected to make up for weakness in underwriting business as Japanese companies grew cautious in anticipation of a deep recession.

Chief executive officer Kentaro Okuda may not be able to rely on the boom being sustained, with US banks including Morgan Stanley warning that transaction volumes are waning. Mr Okuda, who took the job on April 1, has vowed to persist with an overhaul that centres on bolstering advisory business for companies and revamping the struggling domestic retail franchise.

Nomura's path from here could be "one step forward and three steps back", said Bloomberg Intelligence analyst Shin Tamura. While corporate clients will rely on the firm to issue bonds to raise cash needed to survive the economic downturn, there may be less demand for equity underwriting, merger advisory and trading services, he said.

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Japanese equity offerings have plunged 63 per cent so far in 2020 from a year earlier, while corporate bond issuances have slipped 2.3 per cent, according to data compiled by Bloomberg. Mergers have dropped 17 per cent, the figures show.

Net income likely came to 35 billion yen (S$466 million) in the three months ended March 31, up from less than one billion yen a year earlier, said Hideyasu Ban, an analyst at Jefferies. Mitsubishi UFJ Morgan Stanley's Natsumu Tsujino expects profit of 30.1 billion yen.

Nomura's solid results in recent quarters - coming after a rare annual loss in the previous year - have been largely due to its trading desks, even as the company's restructuring emphasised a shift away from relying on such secondary business and toward advisory services. Mr Okuda, whose background is in investment banking, announced the plan in April last year when he was co-chief operating officer.

Worries over the pandemic whipsawed global markets in March, creating the most extreme swings in more than a decade. Wall Street banks gained an average of 30 per cent in trading revenues in the quarter.

Nomura may have benefited from higher trading activity on the retail front too, if results of local rivals are any guide. Mizuho Securities is among firms that reported increases in stock-transaction commissions from individual clients.

But social-distancing efforts in Japan are exposing the business models of traditional brokerages including Nomura, which have closed branch service counters during a national state of emergency. SMBC Nikko Securities said the halting of face-to-face contact with retail customers is having a large impact on its sales of products such as mutual funds.

Shares of Nomura fell 2.5 per cent on Thursday afternoon in Tokyo, extending this year's decline to 24 per cent.

"As far as the outlook is concerned, no one can tell what's going to happen to things like stock trading volumes once the market calms," Jefferies' Mr Ban said. "Will there be more trading? Or things will become quiet? It's impossible to tell yet." BLOOMBERG

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