Nomura Holdings Inc on February 02 said it hoped to get an earnings boost from the Bank of Japan's move to negative interest rates, after a bout of risk aversion among retail investors contributed to a near-halving of third-quarter profit.
The chief financial officer at Japan's biggest investment bank, Shigesuke Kashiwagi, said the central bank's economic stimulus action "will be reflected in investors' movements. That means money invested in securities will rise."
The central bank lowered its policy interest rate below zero last week in a surprise response to slowing global growth and market fluctuations that threaten efforts to beat deflation. The bank aims to encourage savers to invest in growth assets such as stocks, to help create a spiral of rising incomes and prices.In October-December, however, investors were spooked by uncertainty over the global impact of rising interest rates in the United States, slowing economic growth in China and falling oil prices, leading to a 19 percent fall in retail net revenue.
That led to a drop in third-quarter net profit to 35.4 billion yen ($293.9 million) from 70 billion yen a year prior.
Retail - or individual - investors were in "wait-and-see mode," Kashiwagi said of the third quarter. "Clients' investment mindset probably withered somewhat," he added, referring to a global stock sell-off at the start of the fourth quarter.
By adopting negative interest rates, the Bank of Japan is effectively charging commercial banks to deposit funds with it. Those banks would therefore be better off lending out funds or encouraging savers to place their funds in securities. "If they can capture some of the move from deposits, that will be a positive," said Jefferies' head of Japan financials research Makarim Salman. A lot will depend on how Japanese retail investors react, he said. Net revenue rose 4 percent in Nomura's wholesale - or institutional - division and 8 percent in asset management.
Nomura is pushing to increase revenue from asset management and advisory services and lessen exposure to market volatility. In December, it bought 41 percent of asset manager American Century Investment and said it would strengthen its overall Americas operations.
The investment bank is seeking to return its international division to profitability, though it forecast a reduction in its share of global fees due to economic growth concerns, prompting a cut to its wholesale revenue estimate through March 2020.