Keith Mullin
IFR Editor at Large
A busy week so far for bank earnings and like everyone else, my inbox has been filled to overflowing with the usual cacophony of data, news, comment and analysis that as per usual has been so overwhelming in its sheer volume that I’ve happily hit the delete button before reading most of it.
But one missive did catch my eye because the subject line read: “shameless plug for Global Markets”. How cheeky, I thought. Did the fact that the individual admitted up-front to shamelessness make it, well, just shameless or was it actually an inspired piece of attention-grabbing? Clearly the latter, as here I am writing about it.
But you know what? Given the stick I’ve given the firm over the past couple of years, I’m happy to acknowledge its ‘touché’ moment.
So what am I talking about? None other than Nomura’s second fiscal quarter FICC result. At ¥93.8bn this was not only just 4% down on the previous quarter but was actually 7% up on the same quarter of the last fiscal year. And staying with the Japan theme, Daiwa Securities was also out yesterday, posting record numbers (a record since the group started to report consolidated interim results in 1995) driven by an increase in both FICC and equity trading revenues; at ¥17.9bn, FICC was up 35% q-on-q and y-on-y.
Both sets of results were impressive; in the case of Nomura especially so since the firm has been engaged in a restructuring in its wholesale division at the heart of which is a painful cost and business-focus re-adjustment at the same time as it’s suffering the same headwinds as everyone else. We’ll have to see how the numbers evolve over the next few quarters both in absolute terms and relative to the rest of the industry before they can announce victory, but the progress must surely be pleasing to Steve Ashley, the firm’s relatively newly appointed global head of markets.
Ashley is a smart cookie and a good bloke to boot. He spent a chunk of time in Tokyo after joining the firm from RBS in 2010 so he knows the score in head office. The executive board clearly trusts him, too. The firm has had a bit of a hit-and-miss experience with non-Japanese near the top of its tree but Ashley’s been entrusted with a significant chunk of Nomura’s overall business: the wholesale division accounted for 57% of Nomura’s overall net revenue in fiscal Q2 and global markets accounts for 87% of that. In short, Ashley is overseeing close to half the firm’s revenues.
The Others…
Contrast Nomura’s FICC performance with the rest of the industry. It may not match the leading banks for earnings quantum in its fixed-income trading business – the likes of JP Morgan, Citigroup and Bank of America generate multiples of Nomura’s revenues – but that’s irrelevant in the grand scheme of things.
On a blended average basis taking into account q-o-q and y-o-y FICC performance on a reporting-currency percentage-change basis, Nomura is the only house that is in positive territory (+1%) of the market leaders. On this metric, US firms fared better than their European peers but they were all ugly (JPM -12%; BAML -15%; Citigroup -22% against -34% for CS, -38% for Barclays and -40% for DB).
Goldman is firmly propping up the industry on its latest FICC showing (-47%).
At a firm-wide level, Nomura’ s net income for the first half came in at the highest level since the 2002/03 fiscal year and the firm posted higher revenues in all its divisions relative to the same period of last year. And if much of the chat about Nomura has been the trimming of its international businesses, the latest numbers show that the non-domestic business helped the numbers as business in Japan over the last quarter was a bit ho-hum as local clients turned risk-averse and sat on their hands.
What does the firm put its performance down to? A growing client franchise, focus on businesses where it feels it can add value; the lack of legacy balance sheet issues; the cost control programme, prudent risk management and taking early decisions on market direction. I’ll wait a couple more quarters before commenting on that.
Final word: to the cheeky insider at Nomura who made the aforementioned ‘shameless plug’, I’ll be watching the next quarter’s numbers with enhanced interest … If you can be shameless, I guess I can, too!