By Thomas Wilson
TOKYO (Reuters) - Nomura Holdings Inc, Japan's biggest brokerage and investment bank, turned around its overseas business after six years of losses and swung to a fourth-quarter profit as strong revenues from bond trading helped drive its wholesale business.
A profit at its non-Japanese operations has been a long-cherished goal for Nomura, which bought Lehman Brothers' equities and investment banking business in Europe and Asia in 2008 at the height of the global financial crisis as part of a strategy to expand from its domestic stronghold.
Nomura benefitted from investors adjusting their portfolios in response to interest rate movements, elections in the United States and Europe and Britain's progress in leaving the European Union, all of which bumped up bond trading activity. It also gained from a cost-cutting exercise early last year.
Increased trading activity has also benefitted Wall Street banks such as Morgan Stanley and Citigroup Inc, which have posted strong first-quarter profits.
"The profitability of our wholesale business improved substantially over the past year with all international regions profitable on a full-year basis," Nomura Group CEO Koji Nagai said in a statement.
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Nomura posted a pretax profit of 88.1 billion yen on its overseas business for the full year compared with a loss of 79.6 billion yen in the previous year. It recorded a quarterly profit of 16.7 billion yen on the overseas operations, against a loss of 16.6 billion in the year-earlier period.
At its wholesale division, which counts corporations and institutional investors as clients, pretax profit was 28.1 billion yen for the latest quarter compared with a loss of 22.8 billion a year earlier. Besides bond trading, the division's revenue was buoyed by Nomura advising and financing more clients' M&A deals.
Chief Financial Officer Takumi Kitamura told an earnings briefing Nomura will boost coverage of cross-border M&A deals at its U.S. investment banking division.
It will do so "selectively" by focusing on sectors such as financial institutions, financial sponsors and natural resources, which are expected to generate the most synergy with its European division, he said.
Profit at Nomura's retail division, which serves mostly individual Japanese investors, more than doubled in the latest quarter, as increases in sales of investment trusts and bonds offset weak demand for stocks amid a flat market and the thinnest equities trading activity at the Tokyo Stock Exchange since late 2015.
On an annual basis, however, the retail arm's net profit was the lowest in five years. The division, traditionally a driver of the brokerage's profit, has suffered since 2014 as investors have become reluctant to move cash to stocks in an uncertain economic outlook and volatile markets in Japan.
Nomura also announced a share buyback worth up to 80 billion yen, or 2.6 percent of its outstanding shares.
For the current financial year, CFO Kitamura said the company got off to "a slow start" amid political uncertainty in Europe. But he expects investor appetite to eventually come back.
Nomura does not give a profit forecast. A Thomson Reuters survey of seven analysts has forecast an average net profit of 220.5 billion yen for the year ending in March 2018.
($1 = 111.3400 yen)
(Reporting by Thomas Wilson; Additional reporting by Emi Emoto and Taiga Uranaka; Editing by Muralikumar Anantharaman)