Nomura on a Growth Path Despite Scandal Pressure

Nomura, Japan's largest brokerage and investment banking giant, recently reported a doubling of its quarterly profits—the best result in four years. This positive development was overshadowed by a bond trading scandal, prompting the bank's CEO, Kentaro Okuda, to accept a pay cut as a gesture of accountability. From July to September, Nomura achieved a net profit of ¥98.4 billion ($640 million), surpassing analysts' expectations and marking a significant increase compared to the previous year's ¥35.2 billion. Despite extreme market fluctuations that led to a dramatic drop in the Nikkei Index in August, Nomura was able to achieve remarkable performance in asset management, investment banking, and trading—especially as private investors took advantage of the price slumps to buy more. However, a dark shadow fell over the successful quarter: Regulators in September uncovered a scandal involving the manipulation of Japanese government bond futures through so-called "layering" practices. Consequently, Nomura lost business in some areas, particularly in the bond and underwriting segment. The Japanese financial watchdog imposed a fine of ¥21.8 million ($143,000). Okuda and other executives responded by voluntarily taking a 20% pay cut for two months. The bank's reputation was further damaged by the arrest of a former employee suspected of a robbery and attempted murder of an elderly couple who were allegedly bank clients. CFO Takumi Kitamura described the incident as "extremely regrettable." Despite these challenges, Nomura's recent results mark six consecutive months of growth, seen as a tailwind for Okuda as he works to improve the bank's reputation following several scandals in recent years. These include the collapse of Bill Hwang-led Archegos Capital, which brought significant losses to Nomura, as well as the aftermath of the U.S. banking crisis and the collapse of Credit Suisse. Okuda aims to ensure the stability of returns by reducing the wholesale unit’s dependence on volatile trading activities and enhancing stable income sources such as asset management. Additionally, he seeks to expand Nomura's global asset management capacity to accommodate a generational shift in Japanese investment habits. "We are seeing results from our medium- to long-term initiatives to increase stable revenues and diversify our income streams, which confirm our current strategic direction," Okuda said on Friday. "We achieved our best wealth management results in the last nine years, based on record-high recurring revenue.