(Corrects the figure for private credit exposure in Nomura’s wholesale division to $400 million from $200 million in paragraph 14.)
Nomura, Japan's largest brokerage and investment banking group, announced on Friday that it had achieved a record full-year profit for the second year running and signalled that the U.S.-Israeli war with Iran has not so far derailed the structural factors that support growth in Japan.
The group has been executing a multi-year strategy to tilt its revenue mix toward stable, fee-based income streams that are less sensitive to market volatility. At a briefing, Chief Financial Officer Hiroyuki Moriuchi noted that while markets have generally been supportive, several risk elements remain.
"Markets have been favourable up to now, but there are various risk factors at present," Moriuchi said. He cautioned that deals in M&A and equity capital markets may face delays in decision-making, but added that longer-term drivers for Japanese corporates have not changed because of the conflict in the Middle East.
"For M&A and equity capital markets, some decision making may be held up, but looking at the mid- to long-term, the structural challenges facing Japanese companies, such as a declining population and overseas expansion aims, are unaffected by the situation in the Middle East," Moriuchi said.
On a quarterly basis, Nomura's net income for the January-to-March period rose 3% year-on-year to 73.9 billion yen (about $462.60 million). For the full fiscal year, net profit climbed to 362.1 billion yen, up from 340.7 billion yen the prior year.
The bank's wholesale unit - which encompasses its investment banking and trading operations - recorded its highest annual revenue since the division was established in April 2010. Management attributed part of that performance to a shift in corporate behaviour in Japan, where the end of deflation and escalating labour shortages are prompting companies to restructure and invest for growth.
Nomura has played a lead advisory role on a number of large domestic transactions in the most recent quarter. Those deals included advisory work on the 859.7 billion yen business integration between Gunma Bank and Daishi Hokuetsu Financial Group, and involvement in Nippon Steel's 600 billion yen convertible bond issuance.
Looking ahead, Moriuchi said movements in supply chains driven by the situation in the Middle East could spur additional M&A activity, rather than a long-term decline.
"We may see more M&A activity emerging in response to conditions in the Middle East if supply chains change significantly," he said. "I don’t expect activity to fall significantly in the mid- to long-term."
Beyond trading and advisory, Nomura has been expanding its wealth management and investment management franchises to build a more predictable stream of recurring fees. A particular emphasis has been placed on alternative assets - a category that includes private equity, private credit and real estate.
Nomura reported that its assets under management in alternatives reached a new high of 3.6 trillion yen at the end of March.
Heightened attention on private credit in the United States, where redemption requests at U.S.-based funds have raised concerns about potential writedowns, prompted questions on Nomura's own exposure. A firm spokesperson emphasised that Japan's private credit market is still nascent and that Nomura's exposure is limited.
"We’re not a commercial bank, so we don’t have much exposure," the spokesperson said, specifying that the firm holds "about $2 billion in our wholesale division and $400 million in investment management." The spokesperson added: "We are diversified across regions and sectors and properly mark-to-market, so we are able to keep it under control."
Nomura's results underline the group's stated intention to reduce reliance on cyclical trading income by growing businesses that generate recurring fees and by broadening its alternative asset capabilities. That strategy aims to smooth revenue streams against periods of market stress while capturing fee opportunities from corporate restructuring and capital market activity in Japan.
Currency note: $1 = 159.7500 yen.