Nomura is on the cusp of its promised re-invention
MUMBAI, Feb 6 (Reuters Breakingviews) - Kentaro Okuda promised to reinvent Nomura (8604.T), opens new tab when he took the top job at the Japanese bank almost five years ago. It's starting to look like he has kept his word. His next job is to convince investors that the overhaul is sustainable - and that the $20 billion firm won't walk into another scandal.
Nomura on Wednesday reported a bumper final three months of 2024, with net profit doubling, opens new tab to 101.4 billion yen ($664 million) compared with the same period the previous year. Helping Japanese companies strike deals fired up its investment bank, which helped the bank generate an annualised 11.8% return on equity, a similar showing to the previous quarter after years of sub-par performance.
That's also powering its other two main divisions, wealth management and investment management. But Nomura is not just winning in Japan: nearly 40% of total pre-tax income came from overseas, up from 23% a year ago.
Such double-digit returns are on the surface a throwback to Nomura's results in 2020. But Okuda has diversified the firm since then to make its trading business less dependent on rates. He has also built up more recurring revenue in wealth management. Overall, he has largely stuck to his early pledges to bulk up less volatile businesses.
What's less clear is whether the bank has made enough progress to deliver its desired minimum 8% return on equity if the external environment sours - and if it can sustain its recent outperformance when markets remain supportive.
Nor is it clear if Okuda can keep the bank out of trouble. Hedge fund Archegos's 2021 blowup cost the bank billions of dollars. In November, he took a pay cut following a bond trading scandal. On Wednesday, the bank acknowledged that the arrest of a former employee on suspicion of attempting to murder an elderly couple who were clients was having a slight impact on securing new customers.
Nomura trades at 0.8 times the estimated book value for the next 12 months, per LSEG data, up slightly from this time last year. That suggests investors think last quarter's performance is a blip, notwithstanding the 7% rise in its shares on Thursday. Okuda will need a few quarters of consistency without further incidents before shareholders give the bank more credit for its transformation.
Nomura, Japan's biggest brokerage and investment bank, on February 5 reported third-quarter net profit of 101.4 billion yen ($662 million) for the three months to the end of December, a 101% increase from the same period in the previous year. The results beat the mean estimate of analysts compiled by Refinitiv.
Net revenue rose 25% over the same period to 502 billion yen. Nomura's shares rose nearly 7% to 1,068 yen apiece in morning trading on February 6.
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Editing by Antony Currie and Aditya Srivastav
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