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Nomura slides into red as emerging markets lose luster

US-China trade tension also making investors 'markedly risk averse'

Profit slumped 36% on the year in Nomura Holdings' retail business, the Japanese brokerage's biggest profit driver.   © Reuters

TOKYO -- Japan's Nomura Holdings on Tuesday reported a net loss of 6.01 billion yen ($53.1 million) for the six months through Sept. 30 as tough market conditions weigh on brokerages' consumer-facing operations.

"Investors became markedly risk averse due to concerns over U.S.-China trade friction and a fall in emerging markets currencies on the back of rising U.S. interest rates," Takumi Kitamura, Nomura's chief financial officer, said at an earnings conference.

Nomura booked a 40 billion yen-plus one-off cost as part of a $480 million settlement reached with the U.S. Justice Department over accusations of Japan's largest brokerage misleading buyers of residential mortgage-backed securities ahead of the 2008 financial crisis.

But these expenses came on top of weakness in bread-and-butter businesses. Nomura's wholesale segment, which serves corporate customers and financial institutions, logged a 2.5 billion yen pretax loss, down from a 42.3 billion yen profit a year earlier. The retail business -- the biggest profit driver -- experienced a 36% slump on the year.

Nomura had posted a 108.7 billion yen profit in the year-earlier half.

Other leading Japanese brokerages have struggled in the retail market as well. Selling of bonds, mutual funds and other financial products linked to emerging markets dropped off a cliff after the Turkish lira's plunge in August. Traders also took less interest in a Japanese stock market that remained largely rangebound until around mid-September, resulting in less income from trading fees.

Of Japan's big five brokerages, only Mizuho Securities reported profit growth in the first half of fiscal 2018, thanks to strong showings in bond underwriting and advising on mergers and acquisitions. Even online securities houses struggled, with the exception of SBI Securities, which was buoyed by a solid wholesale segment.

Customer assets are growing at Japanese brokerages. Nomura's retail client assets hit a record-high 122 trillion yen in September, while Daiwa Securities Group's assets under management are hovering around their highest level since Japan's economic bubble burst in the early 1990s. A shift in focus to marketing products geared toward medium- to long-term investment has enabled companies to cultivate steady sources of profit.

With market conditions looking unlikely to improve much, such strategies will be key to reviving flagging earnings.

"The percentage of our overhead that we can cover with stable income streams is growing year by year," said Yaoki Tsutsumi, an executive officer at SMBC Nikko Securities and deputy chief financial officer of its parent company, Sumitomo Mitsui Financial Group.

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