(Updates with Daiwa earnings in the eighth paragraph.)
Jan. 31 (Bloomberg) -- Nomura Holdings Inc., Japan’s largest securities firm, is on pace to achieve the biggest annual profit in eight years after a surge in the country’s stock market helped third-quarter earnings more than double.
Net income rose to 48.3 billion yen ($470 million) in the quarter ended December, taking the nine-month total to 152.3 billion yen, Nomura reported yesterday. Profit will reach 197.1 billion yen for the year ending March, the highest since 2006, according to the average of 13 analysts’ estimates compiled by Bloomberg. Nomura doesn’t release forecasts.
Earnings were driven by a Japanese equity rally that spurred trading volumes and sales of mutual funds, boosting brokerage commissions. The company led by Chief Executive Officer Koji Nagai has an opportunity to manage more money for people who sold stocks during the rebound and are now looking for new investments, said Masao Muraki at Deutsche Bank AG.
“The quarterly earnings were a bit better than we expected, particularly brokerage commissions,” said Muraki, a Tokyo-based analyst at the German bank. “Individuals sold a lot of securities and transferred the money to saving accounts. Nomura has the chance to generate more fees by tapping those customers to buy mutual funds and manage the assets.”
Brokerage commissions jumped 45 percent in the quarter from a year earlier to 121.4 billion yen, yesterday’s statement showed. Asset management fees gained 20 percent to 42.1 billion yen. Trading profit climbed 23 percent to 108.5 billion yen.
The average daily trading volume on the Tokyo Stock Exchange first section surged 23 percent last quarter from a year earlier, as the economy recovers on the back of Prime Minister Shinzo Abe’s policies of fiscal and monetary stimulus.
“Trading volumes and prices were high, particularly from mid-December, which boosted brokerage commissions, investment trust sales and asset management,” said Shinichi Ina, a Tokyo- based analyst at UBS AG.
Daiwa Securities Group Inc., Japan’s second-biggest brokerage, reported an increase in third-quarter profit today. Net income tripled to 43.4 billion yen from 14.1 billion yen a year earlier, led by brokerage commissions and trading. That beat the 35 billion-yen average estimate of seven analysts surveyed by Bloomberg.
Japan’s stock rally has stalled this year, with the Nikkei 225 Stock Average falling 8.5 percent in January, its worst month since May 2012, amid concern that growth in emerging markets will slow. Shares of Nomura fell 1.9 percent to 725 yen at the close in Tokyo today, and Daiwa slid 1 percent.
With Abe targeting 2 percent inflation in the world’s third-largest economy, Japanese are starting to shift their savings into stocks and investment trusts. Nomura’s assets under management reached a record 96 trillion yen as of Dec. 31, the earnings report showed.
The company’s investment banking business isn’t faring as well. Fees from the operations, which include managing stock and bond sales for clients and providing advice on mergers and acquisitions, totaled 15.8 billion yen last quarter, the lowest in a year.
Chief Financial Officer Shigesuke Kashiwagi anticipates investment banking will pick up.
“We expect many equity-related transactions, including some big deals,” Kashiwagi said on a conference call with analysts yesterday, adding that there is also strong demand for debt sales. “On M&A, cross-border deals that include financing are increasing in our pipeline.”
Skylark Co., the Japanese restaurant operator controlled by Bain Capital LLC, is working with Nomura and Bank of America Corp. to prepare an initial public offering this year, two people familiar with the matter said this week.
Nomura is facing increasing competition in investment banking from lenders such as Mitsubishi UFJ Financial Group Inc., particularly in advising companies on takeovers. While Nomura was the top bond and stock underwriter in Japan last year, its ranking for mergers advisory slipped to fifth from fourth, data compiled by Bloomberg show.
A brokerage venture owned by Mitsubishi UFJ and Morgan Stanley topped Japan’s M&A rankings in 2013. That venture advised Suntory Holdings Ltd. on its $15.9 billion acquisition of U.S. distiller Beam Inc., the world’s biggest merger announced so far this year. Nomura didn’t work on the deal.
“It’ll be a challenge for Nomura to overcome the competition,” said Koichi Niwa, a Tokyo-based analyst at SMBC Nikko Securities Inc. “We could see more initial public offerings and global acquisitions this year, and it’s critical for Nomura to enlarge the market overall and obtain deals.”
--Editors: Russell Ward, Teo Chian Wei