Wholesale | Shaping our Future
Strengths of the Division
At Nomura, all the divisions and regions work collaboratively to provide best-of-breed products and solutions to meet the diverse needs of our clients globally. For example, we have a robust underwriting and distribution capability, with shares and bonds underwritten by Investment Banking and distributed to a broad investor base globally by Global Markets and Retail branches. Global Markets also provides secondary market liquidity, market and macro insights, and investment ideas to help clients effectively manage their portfolios.
Nomura positions Asia-Pacific as our "mother-market." We have an unparalleled presence in Japan, as evidenced by our #1 rank in the Japan ECM underwriting league table*1, and a top-tier market share of volumes traded in Tokyo Stock Exchange and a high market share in JGB auctions.
Nomura's international network spans more than 30 countries and regions including the Americas, EMEA and Asia ex-Japan, and we support clients globally. This is complemented by 15 primary dealerships in major markets around the globe, a Top-10 U.S. Fixed Income franchise*2 including a Top-3 market maker position for U.S. Agency Securities*3 (Fannie Mae, Freddie Mac, etc.). We were also ranked #7 in the Global SSA*4 underwriting league table.
As our clients globalize their businesses, we have strengthened our cross-regional and cross-divisional collaboration in Wholesale to offer holistic support to clients encompassing cross-border M&A, capital-raising, and currency and interest rates hedging.
1 Source: Thomson Reuter (April 2015 to March 2016)
2 Source: Greenwich Associates, 2015
3 Source: U.S. Federal Reserve
4 Sovereign, Supranational and Agency. Source: Dealogic (Jan to Dec 2015)
Recent Business Conditions and Risks
FY2015/16 was a challenging year, with macroeconomic headwinds emerging from the resurgence of the Greek debt crisis, the slowdown in the Chinese economy, diverging central bank policies, and a sharp decline in commodity prices, especially crude oil. Secondary market liquidity including stock, bond and loan markets declined further during the year, impacting client activity and the fee pool for the industry.
In primary markets, the issuance of equities and bonds decreased on the back of volatile markets and global economic uncertainty. The M&A market was very active with an increase in companies looking to expand their businesses through industry consolidation or strategic acquisition of companies.
In FY2016/17, we expect the market environment to continue to be challenging. On the regulatory front, we continue to pay close attention to the pace of reform. The purpose of these regulations is to ensure the stability of the broader financial system, the health of relevant entities and the protection of clients. However, required changes to comply with upcoming rules may lead to a reduction in capacity and liquidity provided by market participants. It is our mission to play a role as a liquidity provider and respond to the various needs of our clients, while maintaining a resilient risk culture as well as flexible resource allocation.
Furthermore, the Corporate Governance Code went into effect in June 2015 in Japan. As our corporate clients look to improve their ROE, we will provide tailor-made solutions to meet the specific requirements of each of our clients. For example, we have supported many clients in unwinding their cross shareholdings and share buybacks using derivative solutions.
Actions to Shape Our Future
In April 2016, Wholesale conducted a strategic review of the business portfolio in EMEA and the Americas. The purpose of this exercise was to reallocate our managerial resources to further focus on selected businesses where we have expertise and competitive advantages, and position our business to deliver sustainable profit across market cycles.
In detail, we continue to strengthen our Global Macro business including Rates products and our Emerging Markets platform, building on our success in the past few years. We also remain focused on reinforcing our agency execution business, Instinet, which includes expanding our product offering to position the business as a multi-asset agency platform. In the M&A advisory business where we see increasing client demand, we continue to provide high-quality services while also seeking to provide clients with ancillary financing and risk solutions including interest rates and FX hedges. The new Wholesale structure has reinforced the partnership between Global Markets and Investment Banking, which should encourage product innovation and improve 'time to market,' especially for our Solutions businesses.
Such strategic review of the businesses in EMEA and the Americas will enable us to have a stronger focus on our areas of strength, which should support our transition to a more profitable and sustainable business model. In Asia-Pacific, our business will not be negatively affected by these changes. We will maintain and seek to further grow the existing full-service platform, to tap into various business opportunities that arise on the back of medium- to long-term growth in the region. We will continue to deliver competitive products and services to our clients by connecting markets East and West, leveraging our strengths in Asia-Pacific as well as our broad client base and strong product capabilities in EMEA and the Americas.
Promoting Socially Responsible Investment (SRI)
Nomura has been promoting SRI as an investment strategy for Japanese retail investors, and established a track record in this field. In October 2015, we arranged and sold Education, Youth and Employment (EYE) Bonds to retail investors in Japan. Also, our continuous efforts resulted in a total sale of over ¥56 billion in World Bank Sustainable Development Bonds, making it this product's largest distributor in the Uridashi market. We will continue to offer investment products that contribute to the resolution of social issues and help create a more affluent society by serving as an intermediary between individuals who are interested in participating in providing solutions to social and environmental issues, and projects or funding needs in developing countries.
Initiatives to Improve Products and Services
Global Research Portal
Nomura's global research team collaborates across regions and products to provide clients with insightful opinions and investment recommendations in core areas including the economy, equities, quantitative strategies, foreign exchange, interest rates and credit. Our team has achieved high acclaim from our clients. They are easily able to access our research online at the Global Research Portal (GRP), where they have the option to automatically receive the latest reports of their choosing through GRP's mail delivery service. Research reports are provided online in Japanese and English.
FY2015/16 Financial Results
The start of FY2015/16 ushered in a period of higher volatility driven by concerns surrounding the fiscal sustainability of Greece. In the latter part of the year, market conditions deteriorated further and client activity plummeted as the economic slowdown in China, widening credit spreads, plunging oil prices and monetary policy uncertainties drove market participants to the sidelines. In this challenging market environment, Wholesale Division delivered net revenue of ¥720.3 billion, 9% lower than in the previous year, and income before income taxes of ¥15.4 billion, 81% lower than in the previous year.
Global Markets recorded net revenue of ¥600.3 billion, a decline of 12% over the previous year. Equities remained resilient amid difficult market conditions, but Fixed Income net revenues declined significantly, particularly in the second half of the fiscal year when volatility heightened and liquidity dried up.
Investment Banking enhanced cross-regional and cross-divisional collaboration, producing a number of notable M&A transactions and multiproduct deals across all regions. As a result, Investment Banking net revenue was ¥120 billion, 13% higher than in the previous year. In Japan, revenues increased year on year, driven by the participation in key landmark financing transactions, industry consolidation and cross-border M&A deals, as well as Solutions businesses such as foreign exchange and interest rate hedges to corporates and financial institutions. Among overseas regions, we saw solid performance in EMEA and Asia ex-Japan, while the Americas experienced a slowdown due to significant market headwinds.
Initiatives to Improve Profitability
Wholesale Division has lowered its cost base by $2 billion since 2011, including taking strategic actions to align the Fixed Income business portfolio to the evolving market environment during FY2015/16. At the start of FY2016/17, another strategic review of the business portfolio was conducted in view of the challenging market outlook, and a number of actions were taken particularly in EMEA and the Americas.
Our mother-market platform in the Asia-Pacific region was not affected by these changes. In EMEA, we closed down certain businesses with structural disadvantages to focus on areas of our strength. In the Americas, we streamlined some of our businesses to refocus on our core businesses and pursue selective growth opportunities to expand our share of the world's largest fee pool. Through these actions, we have lowered the breakeven point of the Division, and positioned the international Wholesale platform to deliver sustainable performance across market cycles.
Net revenue and
income (loss) before income taxes
Net revenues by region