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Low bond yields leave Nomura looking beyond fixed-income trading, says CFO

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Low bond yields leave Nomura looking beyond fixed-income trading, says CFO

Nomura Holdings Inc. CFO Takumi Kitamura said the company is considering diversifying away from the fixed-income business, after net profit for the fiscal first quarter fell to the lowest level in more than two years due to a slump in bond trading revenue.

Japan's biggest brokerage and investment bank by assets posted July 26 a 90.8% year-over-year drop in net profit for the fiscal quarter ended June 30.

Persistently low bond yields had pushed Nomura's wholesale banking division into the red, Kitamura said during a July 26 earnings conference call. In the quarter ended June 30, the division which includes fixed-income and equities trading and investment banking posted a net loss of ¥7.4 billion, compared with a net profit of ¥25.4 billion a year earlier.

"We may have focused too much on the rates business, frankly. And with the current environment, the negative impact on the businesses which we had placed our resources on was somewhat big. So [we are] thinking about how to allocate or reallocate our resources," he said.

Michael Wu, a Hong Kong-based analyst at Morningstar, said the brokerage will likely channel more resources in its asset management and retail businesses. The analyst added that the Japanese company's wholesale banking business has been struggling to compete globally, with weaker client base and relationships relative to U.S. and European rivals.

The Bank of Japan has had a "yield curve control" policy in place since 2016, with the aim of keeping 10-year bond yields around zero through purchases of Japanese government bonds.

"I think the environment in Japan is not going to change that much [over the next quarter]," Kitamura said.

As of July 26, US$1 was equivalent to ¥111.08.