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Key Milestones Drive Nomura’s Strong Net Income Growth In Q2 2025 · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, we are really getting into the weeds with Nomura Holdings.
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  We're looking at their Q2 and first half results for the fiscal year ending
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  March 2026, just came out.
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  And our goal here really is to cut through all those big numbers,
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  you know, the net revenue, income, all that.
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  We want to understand what actually drove the performance, the good parts,
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  maybe the not-so-good parts, and what management seems to be thinking about
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  the road ahead. So let's start with the big headline.
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  Because the first half, H1, it looked undeniably strong overall.
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  Net income for shareholders hit 196.6 billion yen.
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  That's roughly, what, 1.3 billion U.S. dollars.
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  And that's up 18% compared to last year. Group pre-tax income up even more, 26%. Big jumps.
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  Yeah, that 18% is definitely eye-catching. But for me, the number that really
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  stands out strategically is the annualized return on equity, the ROE.
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  For the first half, it came in at 11.3%. Okay, 11.3%. Why is that so important?
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  Well, their stated goal, you know, the benchmark they set for themselves,
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  is to consistently deliver 8 to 10 percent ROE or maybe a bit more.
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  Hitting 11.3 percent isn't just meeting the goal. It's like smashing through the top end of it.
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  It suggests they're using shareholder money quite effectively right now,
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  more effectively than promised even.
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  That's a pretty strong signal. OK, so a strong start.
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  Let's unpack how they got there, because like you said, that 18 percent growth
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  wasn't uniform across the board, was it? Not at all.
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  It seems like one division was really doing the heavy lifting.
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  And that'd be the wholesale division.
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  Exactly. The wholesale division was the powerhouse here. Their H1 pre-tax income absolutely surged.
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  We're talking 43.1% higher than last year.
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  Wow. 43%? Yeah. Hitting 95.0 billion yen.
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  And management used this interesting phrase. They attributed it to capital discipline
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  and self-sustained growth. Self-sustained growth.
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  Okay. What does that usually mean in management speak? Is that just spin or?
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  Huh. Well, it can be spin sometimes, but here I think it's meant to signal something important.
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  It suggests this isn't just riding a market wave, you know, not just luck.
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  It implies internal improvements, efficiency, maybe better strategy paying off.
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  And we see some evidence for that if you look deeper.
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  Within wholesale, the global markets segment had stronger Q2 revenues.
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  And that was specifically underpinned by record high equities revenue.
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  Record high equities. That sounds great, but isn't that kind of business really
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  volatile, dependent on market conditions?
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  Absolutely. Equities revenue can swing wildly. That's the risk.
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  So calling it self-sustained?
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  Is management saying they think they can keep this level up even if markets get choppy?
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  That feels optimistic. It does seem optimistic, and that's the key question,
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  isn't it? Can they sustain it? But the report suggests the strength wasn't just equities.
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  Their investment banking side kept up strong momentum here in Japan.
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  And maybe more importantly, their overseas M&A business actually rebounded.
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  They mentioned closing multiple deals.
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  That's interesting, especially given the global M&A market has been a bit sluggish overall, right?
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  Exactly. It suggests maybe their deal execution was better than some competitors,
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  which points more towards that discipline idea, less towards just market luck.
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  So, yeah, multiple engines firing within wholesale. That's probably why they
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  use that self-sustained language.
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  Okay. So wholesale is the growth engine, putting up huge numbers.
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  But you need stability, too, right?
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  Yeah. What about the other parts of the business? Right. You need that foundation.
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  And that's where wealth management and investment management usually come in.
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  They're meant to be the anchors.
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  Let's take wealth management first. How did that do?
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  Well, its H1 income before tax actually dipped slightly is down 1.4% compared to last year.
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  Down 1.4%. Hmm. Okay. Doesn't sound quite as stellar.
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  No, but you have to look at the context. That slight dip doesn't really capture
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  the underlying strength of that business.
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  How so? Because the fundamentals there are still really solid.
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  They hit a record high for their recurring revenue asset base.
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  And crucially, they've now had 14 straight quarters of net inflows from clients.
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  People keep putting more money with them. Fourteen quarters.
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  That's what, three and a half years of consistent inflows? Yeah,
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  it's impressive stability.
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  Think of it like building a really strong foundation brick by brick.
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  And they reported this metric, the recurring revenue cost coverage ratio. It was 70 percent.
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  70 percent coverage. What does that actually mean for the business?
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  It's a really important stability metric.
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  It means that the steady, predictable fees they get from managing client assets,
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  the recurring revenue that alone covers 70% of their operating costs.
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  So even if markets go crazy and trading commissions dry up, they know a huge
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  chunk of their core costs are covered by that reliable income stream.
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  It's a safety cushion. Got it. So that 1.4% dip in income is more like a minor
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  wobble on a very solid base rather than a sign of weakness.
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  Exactly. That's how I read it. Okay. What about the other anchor,
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  investment management or IM?
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  IM saw its net revenue for the first half increase, actually,
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  up 7.4 percent compared to last year. OK, that's positive.
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  And their main stability measure, Assets Under Management, or AOM,
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  hit an all-time high, a massive 101.2 trillion yen. Wow, over 100 trillion yen.
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  Yeah, huge number. And similar to wealth management, they've seen consistent
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  inflows, 10 straight quarters of net inflows there.
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  Asset gathering is going well. So stable inflows, growing revenue.
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  Looks good. It does. And what's interesting in the Q2 IM results specifically
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  is they highlighted a boost from investment gains and losses.
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  And a significant part of that came from their stake in American Century Investments.
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  Ah, so an alliance partner contributing.
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  Precisely. It shows these strategic stakes aren't just sitting on the books.
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  They can actively contribute to performance, adding another layer,
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  maybe a slightly less predictable one, on top of the core fee business.
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  OK, so summing up the first half, wholesale booming, wealth and investment management
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  providing these really big, stable foundations, maybe with a little extra kick
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  from investments like American Century. Sounds pretty rosy overall.
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  On the surface, yes. The H1 headlines look fantastic. But I sense a but coming.
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  Yeah, there's always a but when you dig into the details, right?
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  Right. Here's where it gets, I think, really interesting. Because those great
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  H1 numbers, they kind of paper over some cracks, especially if you zoom right
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  into the second quarter.
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  Q2. Yeah, the momentum seemed to slow down quite a bit in Q2. Definitely.
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  If you look just at Q2 results, group net income attributable to shareholders
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  was actually down 12 percent compared to the previous quarter,
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  Q1, and it was down 6 percent compared to the same quarter last year.
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  Income before taxes also dropped 15 percent quarter on quarter.
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  That's not a small slowdown. No, it's quite a noticeable deceleration,
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  and it seems linked to something we haven't talked much about yet.
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  Rising costs. Ah, expenses. Yeah. Always the other side of the coin.
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  Exactly. And it hits those supposedly stable divisions.
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  We mentioned wealth management income was down 1.4% for the half.
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  Now look at investment management again. Net revenue was up 7.4%, right? Sounds good.
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  Yeah. But their income before tax was actually down 5.2% compared to last year's
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  first half. Down? How? If revenue is up?
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  Costs. They're non-interest expenses, basically. Their operating costs jumped
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  by 21.6% year over year. 21.6%. That's huge.
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  It's a massive increase. It completely wiped out the benefit of the revenue growth and then some.
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  That's a big hit to their profit margin in a core stable business.
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  And are we seeing that cost pressure elsewhere, too? We are.
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  Look at the newer banking division. Net revenue for H1 was up a decent 9.5 percent. Yeah.
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  But their non-interest expenses spiked even higher, up 27.4 percent. Oh, 27 percent. Yeah.
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  And as a result, their banking income before tax actually fell by over 21 percent for the half.
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  So wait, if the costs in your stable recurring revenue businesses are rising
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  by over 20 percent, doesn't that kind of undermine the whole point of them being stable anchors?
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  That's the critical question, isn't it? It absolutely raises concerns about
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  operational efficiency or maybe the cost of global expansion,
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  technology investment or just plain inflation.
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  Whatever the cause, those cost increases are currently outpacing the revenue
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  growth in those steady areas. That eats into margins. Yeah.
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  Management really needs to get a handle on that. Otherwise, that impressive
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  70% cost coverage ratio in wealth management we talked about earlier,
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  it could start to erode if costs keep climbing like this.
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  Okay, so rising operational costs are a definite watch item.
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  But there was another big factor that made the H-1 numbers look particularly
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  good, wasn't there? A kind of one-off boost. Yes.
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  The elephant in the room, or rather the land sale in the room.
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  The other segment. Right. What happened there? Well, the income before tax in
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  the other segment just exploded. It was up 155.1% for the first half,
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  reached 56.9 billion yen.
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  155% increase. That's enormous. What caused that? It was almost entirely due
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  to profits from selling land and buildings they owned in Takenawa, Tokyo.
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  The sale was recorded back in April 2025, right at the start of this fiscal
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  year. So basically selling off some real estate. Exactly.
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  It's a classic example of a large non-recurring game. It's real money,
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  but it's not from their core day-to-day business operations.
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  How much did that one sale inflate the overall results?
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  Well, think about it. Overall H1 net income grew by 18%. That 56.9 billion yen
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  gained from the property sale is a huge chunk of the total profit.
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  If you mentally strip out that one-off gain, the underlying growth rate of their
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  core banking and market businesses looks significantly lower.
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  Still positive, probably, but nowhere near as spectacular as the headline numbers
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  suggest. That's really important context for listeners.
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  It's like, you know, finding a $100 bill on the street. It's great,
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  but you can't budget based on finding one every week.
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  Precisely. It highlights the need to distinguish sustainable performance from
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  these temporary boosts when you're analyzing results. Okay, so pulling it all
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  together on performance.
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  Core strength from that big 43% jump in wholesale, but tempered by realizing
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  a chunk of that is volatile equities revenue.
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  Stability from wealth and IM is solid in terms of assets, but getting squeezed
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  by rapidly rising costs over 20% increases.
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  Yeah, that's a fair summary. And the whole picture was given a significant but
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  temporary gloss by that big property sale. Correct.
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  That's the nuanced view behind the headlines. All right, let's pivot then.
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  What does all this mean looking forward? What did Nomura signal about where
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  they're heading and what it means for shareholders?
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  Are you listening? Well, the most direct signal for shareholders was the dividend.
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  They increased the half-year dividend. Oh, yeah. By how much?
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  It was declared at 27 yen per share for Q2.
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  That's up from 23 yen per share the previous year. OK, a decent bump,
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  about 17 percent increase. Something like that.
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  And that dividend hike, I think, directly reflects the confidence they've gained
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  from hitting that 11.3% ROE.
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  They beat their target, and they're sharing some of that success.
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  And management sounds committed to keeping that ROE up. They do.
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  They explicitly stated they're continuing to strengthen the business model precisely
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  to keep delivering that 8-10% ROE or higher consistently.
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  That seems to be the key internal benchmark. And any broader strategic comments?
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  Vision for the future? Sure. Yeah. The CEO talked about strategy,
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  reaffirming their commitment to enhancing corporate value and achieving their longer term goals.
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  They have this 2030 management vision called Reaching for Sustainable Growth. Sustainable Growth.
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  Ties back to that self-sustained comment about wholesale, maybe.
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  Trying to make that growth less volatile. Could be. It implies a focus not just
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  on growth, but growth that lasts.
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  That isn't just tied to market cycles or one-off events.
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  Building a more resilient business. Okay. Sounds positive. Yeah.
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  But do they give any concrete numbers, like actual forecasts for the rest of the fiscal year?
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  What do they expect earnings or dividends to be? Ah, well, that's where they draw a line.
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  And it's an important point about their guidance philosophy.
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  Nomura specifically does not give earnings and dividend forecasts for the rest of the year, FY2026.
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  Really? Why not? Most companies give some kind of guidance.
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  Their reasoning is basically prudence. They point to the inherent uncertainties
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  in global capital markets, you know, sudden economic shifts, market volatility.
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  They feel it makes providing reliable numerical forecasts too difficult,
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  maybe even irresponsible.
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  Is that typical for investment banks? It's not uncommon, especially for firms
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  with significant trading operations like Nomura's Wholesale Division.
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  Those revenues can be very unpredictable quarter to quarter.
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  So issuing precise guidance is risky. It shows a certain discipline,
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  maybe not over-promising in a volatile world.
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  Okay, so cautious on specific numbers, but confident on the overall strategy and the ROE target.
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  That seems to be the message, yeah. All right, let's try to wrap this up then.
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  Key takeaways for you, the listener.
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  It seems Nomura had a really strong first half overall with some important nuances,
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  driven largely by that powerful rebound in the wholesale division,
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  especially record equities revenue.
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  Right, but boosted significantly by that one-off property sale gain.
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  Need to remember that. Definitely.
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  And the stability anchors, wealth and investment management,
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  they're holding steady in terms of client assets and inflows. And it's a big but.
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  They're facing some serious pressure from rising costs. Those 20% plus increases
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  in expenses, that's eating into their profitability.
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  And that Q2 slowdown in overall profit suggests momentum may be cooled off a
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  bit towards the end of the half.
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  Yeah, those rising costs and the quarter-and-quarter dip are probably the biggest
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  things to watch going forward.
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  Can they get expenses under control? Can wholesale maintain momentum if markets change?
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  And that really brings us to the final thought, maybe something provocative
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  for you to consider. Look at the huge difference in performance.
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  Wholesale income jumps over 40 percent in the half.
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  Wealth and investment management income is basically flat or slightly down because
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  of costs, despite growing assets. Yeah, huge divergence.
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  So the big strategic challenge for Nomura seems clear. How do they balance that
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  commitment to stability?
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  That 70 percent recurring revenue coverage ratio is great with the sheer volatility,
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  but also the higher rewards of that global markets business. Can they nurture both?
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  Or will the pressure to chase wholesale profits conflict with the need to invest
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  in and control costs in the stable businesses?
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  What stands out to you about that balancing act? That's a great question.
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  That tension between the high-flying trading desk and the Steady Eddie Wealth
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  Manager seems central to their story right now, especially with those rising
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  costs making Steady look expensive.
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  We will definitely be keeping an eye on how they manage that tradeoff in the coming quarters.
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  Thank you for joining us on this deep dive into Nomura's Resolve.
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  We hope you found it useful. We'll see you next time.