Nomura, Daiwa profits jump, but Abenomics momentum slows

Reuters

* Nomura's net profit gains 13.6 times on year, drops 42 pcton quarter

* Daiwa's net profit rises 4.8 times on year, falls 38 pcton quarter

* Commissions hurt by 30 pct drop in trading volume inJuly-Sept

* Nomura's wholesale division profit flat on quarter, fixedincome outperforms peers

By Nathan Layne and Emi Emoto

TOKYO, Oct 29 (Reuters) - Nomura Holdings Inc andDaiwa Securities Group Inc reported jumps in quarterlyprofit from a year earlier, but slowing trade in Tokyo stockshas knocked some wind out of a resurgence of Japan's top twoinvestment banks.

Both companies have seen their fortunes improve markedlythis year thanks largely to the aggressive economic growthagenda of Prime Minister Shinzo Abe, who came to power inDecember, renewing investor interest in Japanese stocks.

While the latest quarter revealed some bright spots, such asNomura expanding revenues from fixed income trading while mostof its peers suffered declines, the results also underscoredjust how crucial "Abenomics" is to the two companies' futuregrowth prospects.

"If there is a regression in Abenomics then that will ofcourse hit the markets," Daiwa's Chief Financial Officer MikitaKomatsu said after the earnings release. "But we are optimistic.We don't think that will happen."

Nomura posted on Tuesday a net profit of 38.1 billion yen($389.9 million) for July-September, up from 2.8 billion yen ayear earlier but down from 65.9 billion yen in April-June. TheStarmine SmartEstimate of four top-ranked analysts was 43billion yen.

Daiwa said its net profit increased fivefold on year to 35.5billion yen, compared with the SmartEstimate of 32.8 billion yenand a record 57.3 billion yen in April-June.

Nomura Chief Financial Officer Shigesuke Kashiwagi pointedto revenue gains in Europe, the Americas and Asia outside Japanas progress toward making its overseas business profitable. Thatbusiness, built by buying parts of failed bank Lehman Brothersin 2008 and expanding in the U.S. on its own, was downsized aspart of a recently completed $1 billion cost-cutting programme.

"There is no need for us to embark on a big expansionoverseas," Kashiwagi said at an earnings briefing. "Ourbreak-even point has been lowered and we can steadily worktowards boosting market share and profitability."

The flow of money into Japanese equities has slowed asinvestors become sceptical about whether Abe can deliver onpromised reforms. Trading value on the Tokyo Stock Exchange fell30 percent in the September quarter, cutting into brokerages'bread-and-butter business of selling shares.

Both Nomura and Daiwa said profit from their retaildivisions halved from the prior quarter. Nomura has 176 branchesacross Japan while Daiwa has 120, though it has announced plansto expand in its network by 50 percent over the next few years.

The heavy exposure to retail investors in Japan is one ofthe factors that sets Nomura and Daiwa apart from Goldman SachsGroup Inc and other investment banks that focus primarilyon corporate customers. Nomura stock is up 47 percent this year,while Daiwa's has surged 86 percent, suggesting some investorsview this exposure as a strength.

Nomura and Daiwa are both banking on the introduction thismonth of a tax-free investing scheme to encourage individuals toput more of their $15 trillion of savings into stocks. Overthree million Japanese have filed applications for the accounts,which offer a five-year tax holiday on dividends and capitalgains and allow individuals to invest about $10,000 each year.

Nomura said profit in its wholesale division, which coversglobal markets and investment banking, was roughly flat from theprevious quarter. The 7 percent on-year rise in fixed incomerevenues compared favourably with other global investment banks,many of which suffered steep declines as clients refrained fromtrading those products while the U.S. Federal Reserve's stanceon its bond-buying programme remained unclear.

Shares of Nomura closed down 0.7 percent before its earningswere released, whereas those of Daiwa ended down 0.9 percent.The benchmark index fell 0.5 percent.

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