London, Feb 7: Japan's biggest brokerage Nomura Securities Co Ltd said it expects to make a pre-tax profit of 100 billion yen ($807 million) for 1997-98."We expect pre-tax profits on a consolidated basis of 100billion yen for this fiscal year," Nomura's president and chief executive officer Junichi Ujiie told reporters at a London briefing.
Nomura last month reported a group profit of 65 billion yen for the period April to December 1997, attributing the result to favourable investment banking business in the European market.
The group -- hit by a series of racketeering scandals and the fallout of the Asian Financial crisis -- reported a pre-tax loss of 198 billion yen for 1996-97 following a profit of 151 billion yen the previous year.
Nomura, the first brokerage caught in the so-called `sokaiya' payoff scandal, was hit by administrative penalties imposed by the finance ministry last July. It was suspended from stock trading on its own account until the end of 1997 and also temporarily barred fromtaking part in government bond auctions and underwriting. Ujiie was appointed to head the group last April following a complete overhaul of Nomura's top management in response to the racketeering scandal.
He said that while Nomura's reputation had been tarnished, he believed both the market and Nomura's clients had been assuaged by management changes.
"I think we have gained some kind of confidence from our clients over the last few months," he said, adding that 20 directors had left since the problems began.
He pointed out that the corruption problems had taken place before his own appointment and stressed that his job was to clean up the system and ensure there was no repetition of this sort of behaviour.
Ujiie has instigated a compliance system which in addition to bringing in independent lawyers, also gives employees a direct confidential `hotline' to report any irregularities. This mechanism is in turn overseen by another which is charged with ensuring Nomura's compliance keeps pace with industryand regulatory changes worldwide.
Ujiie said the corruption which had dogged Japan's financial system was a result of both people and systems being at fault as information about wrongdoing failed to flow through to the top. Looking to the future shape of Nomura's business, Ujiie said he expected broking commissions, its traditional revenue base, to contribute 15-20 per cent of the group's income over the next three to four years, with trading bringing in 30 to 40 per cent.
Underwriting and traditional investment banking would account for slightly less than 20 per cent of income, with financial income and other fees such as mergers and acquisitions fees making up the remainder.
Ujiie said Nomura plans to focus on transferring financing techniques such as securitisation and commercial mortgage-backed securities -- which it has developed in the US And Europe -- to other markets particularly in Europe and Japan.
But he stressed the business flow would be two-way with Nomura offering investors in the USAnd Europe the chance to buy Japanese securities as well as bringing international products to Japan.
Ujiie predicted that the deregulation of Japan's financial markets -- known as `big bang' -- would result in a period of consolidation for the country's 260 brokerage firms.
"Do you really think Japanese brokerages will be resistant to big bang? Even if we do not buy them, and they fail, we will get their business," he said. While he did not forsee any acquisitions by Nomura in the immediate future, Ujiie said the firm would only buy Japanese houses that added to its current product or skill base.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
