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Nomura urges caution amid signs of recovery from dismal year

Nomura Holdings Inc. expressed cautious hope that its latest turnaround plan has put itself on track for a rebound from a dismal fiscal year, after reporting 969% year-over-year surge in fiscal first-quarter net profit as well as higher revenues in all three business divisions.

Nomura CFO Takumi Kitamura said in a July 31 earnings call that Nomura's efforts to revamp its product line, rein in expenses, and review strategic sectors bore fruit in the fiscal first quarter ended June 30, even in a "challenging environment" that included U.S.-China trade frictions, Brexit uncertainty, and prospects of interest rate cuts in the U.S. and Europe.

The company "saw results from reviewing our business portfolio and other efforts to improve profitability...resulting in higher income before income taxes in all business divisions," said Kitamura.

"By implementing the realignment of our business platform, we aim to gain further traction to build on the signs of change that became evident in the first quarter of this year."

Kitamura, however, emphasized the scale of the challenge Nomura faces in overcoming its woes, which caused support for CEO Koji Nagai to plunge at a June shareholder meeting. "We are neither optimistic nor pessimistic," said Kitamura.

Nomura reported signs of a broad-based recovery across business units and regions in the fiscal first quarter.

Its wholesale, retail and asset management divisions all notched higher quarter-on-quarter net revenue and pretax income, with a combined total of ¥274.6 billion and ¥46.3 billion, respectively. Nomura's three international regions, meanwhile, returned to pretax profit totaling ¥30.4 billion.

Kitamura cited Nomura's overhaul of its retail product strategy as a "major factor" in the positive first-quarter results. And he cited strong wholesale performance, even in a global environment that was "not favorable," as a reason for hope.

"Is it sustainable? It's challenging but we wish to maintain this momentum," said Kitamura.

Cost-cutting continues

Nomura also made important progress in its belt-tightening mission in the first quarter, achieving the 50% mark in its target to reduce overall costs by ¥440 billion by 2022. It hopes to meet 60% of the goal this fiscal year. Kitamura said a work-in-progress to implement an artificial intelligence platform promises to further bring down expenses.

In April, Nomura announced a major restructuring drive that included slashing $1 billion of costs from wholesale operations, reducing its global workforce, and consolidating branches in its domestic market.

Kitamura said Nomura was not finished with reducing its global workforce, although some executed job cuts have not been reflected in the latest headcount figures from June, which showed overseas staff dropping to 11,689 from 12,012 in March.

"Some of it is included (in the June figure) and some not," said Kitamura. "Just because we communicate with an employee it does not mean they are immediately deducted from headcount … Not all of headcount optimization has been reflected."

The signs of recovery come amid a volatile global business and geopolitical environment, chronic weakness in Japan’s banking industry, and increasing scrutiny over Nomura's own business practices. In May, Nomura was hit by revelations that employees leaked sensitive market information from its Nomura Research Institute Ltd. affiliate to institutional clients, a key factor in the June pressure on Nagai to step aside.

Nagai vowed to continue improving Nomura's business practices following the earnings announcement. "We will work to further strengthen our internal control framework and swiftly rebuild our business platform," he said.

CFO Kitamura held out the possibility of another share buyback following the surprise $1.4 billion acquisition of shares in June. "At this stage of the year, we are not able to commit," said Kitamura. "But yes, there is an option of an additional share buyback."

As of July 31, US$1 was equivalent to ¥108.60.