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Nomura seeks to reduce risk bets after net income plunges

Nomura Holdings Inc. will focus on reducing its risk exposure after market uncertainty caused a 97% plunge in its net income during the fiscal first quarter that ended June 30.

Japan's biggest brokerage and investment bank on Aug. 3 reported ¥1.70 billion in net income for April-June, compared with ¥48.49 billion a year ago, as volatile markets impacted its asset management and investment banking businesses.

"Nomura's earnings are necessarily market-dependent," Morningstar analyst Michael Makdad said. "I think the market environment will remain weak in the coming months."

The global financial industry is feeling the impact of rapid rate hikes by the U.S. Federal Reserve and other global central banks as they tighten monetary policy to tamp surging inflation. With liquidity in short supply and fears of a looming recession, most global stock markets have seen sharp corrections, especially after Russia's invasion of Ukraine in February.

Volatile markets

Market volatility pushed Nomura's credit risk weighted assets to ¥8.37 trillion by the end of June from ¥8.30 trillion in March, while its market risk rose to ¥5.84 trillion from ¥4.90 trillion. Operational risk was unchanged at ¥2.63 trillion.

Nomura's Common Equity Tier 1, or CET 1, capital ratio dropped to 16.7% at the end of June from 17.7% a year ago as its overall risk weighted assets rose to 16.84 trillion from ¥14.71 trillion.

"We'll take special care to control risk," Nomura CFO Takumi Kitamura said during an online conference Aug. 3. "The uncertain outlook for inflation and interest rates will continue for a while."

Segments pressured

The company's investment management segment reported a pretax loss of 11.7 billion in the June quarter, marking two consecutive quarters of losses and reversing a pretax profit of 44.9 billion in the previous year.

Rising interest rates and declining stock prices depressed assets under management and inflows from its investment advisory and international businesses.

Retail operations also came under pressure from the uncertain outlook for the markets, posting a 74% decline in pretax income to 4.9 billion.

"Our customers were on the sidelines amid the uncertain market environment," Kitamura said.

The company's wholesale business performed better with a pretax income of 25.3 billion, a turnaround from a pretax loss of 28.4 billion. Its stronger fixed-income and equity operations more than offset declining investment advisory business.