Plunging Revenues: 3 Takeaways From Nomura’s Quarterly Report

The firm reported a decline in revenues across the board

This Thursday saw Nomura releasing its financial report for the first quarter of the 2019 fiscal year. It’s been a rocky few months for the Japanese firm, particularly in its European lines of business.

At the beginning of July, Nomura let around fifty employees go from its London office. This included several senior traders, most notably the firm’s former Global Head of FX Trading, Nigel Khakoo.

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The move to let go of so many employees was preceded by a suggestion, from Nomura’s CEO Koji Nagai, that the Japanese firm would be making big changes to its business strategy. Nagai told shareholders in a meeting this June that Nomura is “in the middle of progressing drastic structural reforms overseas.”

In the midst of this came today’s quarterly report. By no means an atrocious quarter for the firm, it was still a largely disappointing one. Individual divisions may have performed better than others, but overall the firm did not do well.

As our readership is comprised of industrious men and women, and we don’t like to keep too much of your time, let’s dive into the report. Here, for your reading enjoyment, are three takeaways from Nomura’s first quarter of 2019.

Revenue was down year-on-year

Thursday’s report indicates that Nomura saw net revenues of ¥272 billion ($2.5 billion) in the first quarter of its 2019 fiscal year. This was a 25 percent decrease on last year when the firm finished its first quarter of the year with ¥361 billion ($3.26 billion) in net revenue.

Though the firm managed to shrink its non-interest expenses by almost 9 percent, to ¥258.4 billion ($2.33 billion), these expenses were a much higher proportion of the firm’s revenue when compared to last year.

As a result, Nomura’s net income, before tax, slumped to ¥13.6 billion ($120 million) for the last quarter. This was a whopping 82.4 percent reduction on the firm’s net income, before tax, in the first quarter of last year.

Unsurprisingly, the figures were similarly bad for net income after tax. In the first quarter of last year, the firm reported post-tax income of ¥58 billion ($520 million). This year that figure decreased to ¥6.7 billion ($61 million) – an 88.4 percent reduction.

Asset management revenue was down but assets under management at an all-time high

Reflecting the firm’s overall performance, Nomura’s asset management division saw a shrink in revenues when compared to last year.

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This year, the firm’s asset management division reported net revenues of ¥26.1 billion ($240 million). That was a 7 percent decrease on the first quarter of last year when the firm reported net revenues of approximately ¥28.1 billion ($250 million).

Unfortunately for Nomura, its pre-tax income saw a more precipitous decline. At the end of the first quarter of 2018, the firm reported revenues of approximately ¥13.5 billion ($119 million) in its asset management division. This year that figure shrunk to ¥10.3 billion, a 24 percent year-on-year decline.

Despite these figures, Nomura remained optimistic about its asset management efforts. It noted that it now has ¥50.8 trillion ($451.2 billion) of assets under management, a record high.

Wholesale finished the quarter in the red

Nomura’s wholesale business was likely its worst performing area this quarter. The firm reported revenues of ¥137.3 billion ($1.24 billion) – a 23 percent year-on-year decrease and a 35 percent quarter-on-quarter decrease.

Unable to shrink its expenses accordingly, the firm’s wholesale business finished the quarter with a loss. Nomura reported that its wholesale division had lost ¥7.4 billion ($67 million) in its most recent quarter.

Nomura attributed these poor results to a combination of geopolitics and a strengthening dollar.

“Ongoing trade friction and heightened geopolitical risks, and the strong dollar made emerging markets investors increasingly risk averse,” said Nagai, “Amid this environment, our performance slowed as fixed income challenges in wholesale led to a decline in our trading business.”

Other firms in the Japanese market have given similar justifications for poor results following a strong first three months of 2018. As a result, there seems little reason to doubt the veracity of Nagai’s claims.

All shall be well

Nagai’s comments, though worrying for the short term, should actually ease the fears of any Nomura investors. They indicate that many of the firm’s problems last quarter were, hopefully, short-term ones that were outside of its control.

True, this last quarter was a bump in the road for the firm, but it should be seen as just that, a bump in the road. The fact that the firm continues to see large inflows to its asset management business, for example, shows that investors still view the firm in a positive light.

So fear not Nomura lovers, the firm may have done poorly this quarter, but it is sure to bounce back in the near future.

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