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Nomura Holdings SWOT and PESTLE Analysis

ID : 52311153 | Dec 2017

OVERVIEW

Name of the Company: Nomura Holdings Inc.

Business Sector: Banking and Financial Services.

Operating Geography: Asia, Japan.

About the Company: Nomura holdings Inc. is a global investment bank headquartered in Japan, Asia, provides financial and banking related services to customers of an integrated network of more than 30 countries. Their three basic business divisions of retail sector, asset management and wholesale division comprising Investment banking and Global markets serve the needs of individuals, corporate and government institutions. It has over 28,000 employees of diverse nationality of 70 countries, working in more than 30 countries and is serving its clientele for more than past 90 years. With more than 158 branches it has the largest retail network of Japan. It trades on NYSE as NMR.

Revenue: ¥4.8 trillion – FY ending 2016.

Competitive Analysis of nomura

The SWOT analysis for Nomura Holdings Inc. is presented below :
Strengths
Weaknesses
1. Continuous accumulation of experience and knowledge
2. Robust financial position
3. Two-pronged business model
1. Operational risk
2. Affiliate and investee impacts
Opportunities
Threats
1. Expansion in Asian markets
2. Aging Japanese population
3. Technology driven opportunities through blockchain and RPA
1. Increased vulnerability due to fluctuations in Japanese and global markets
2. Intense competition in financial services industry
3. Legal and regulatory impacts

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Strength

1. Continuous accumulation of experience and knowledge: Nomura Holdings has been operating since 1925. It is currently operating in of 30 countries. The retail client assets trading handled by Nomura holdings exceed¥111.9 trillion. Net assets managed through the investment trust and investment advisory businesses were at ¥46.1 trillion. These factors have helped it accumulate knowledge and experience in this field.

2. Robust financial position: The debt to equity ratio of Nomura have declined from 15.5 in 2012-13 to 14.3 in 2016-17.Total cash and cash deposits increased by about close to 80% from 2012-13. In a nutshell, the metrics indicate the robust financial position of the organization.

3. Two-pronged business model: The two-pronged business model consists of Retail and Wholesale divisions working in unison. The wholesale businesses involve underwriting and other functionalities, whereas the retail business involves the sales and the distribution. Nomura Holdings with its extensive distribution capability, especially in Japan, can make attractive proposals which are rated by corporate. It can also provide liquidity because of its coverage of financial institutions. The two-pronged business model thus adds to the strength of Nomura Holdings.

Weakness

1. Operational risks: There are various operational risk associated with the products of the organization. The risks include system outages, regulatory non-compliance, miss-selling, information management failure. Some of the risks are associated with the reliance on technology which has been introduced to serve the increasing requirements of the clients. Some of the risks are inherent to the nature of the business which includes internal fraud and business continuity management.

2. Affiliate and investee impacts: If the fair value of the shares of the affiliate and investee organizations in which Nomura holds interest decreases, and if this decrease is permanent then the impact on the financials of Nomura could be adverse. Nomura will have to incur impairment losses for the decline in its affiliates and investee performance.

Opportunity

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Threat

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References

1. Nomura Report 2017 http://www.nomuraholdings.com/investor/library/ar/2017/pdf/nomura_report_all.pdf

2. Nomura 20-F http://www.nomuraholdings.com/investor/library/sec/20f/170626/20170626_e.pdf

3. Nomura Official Webpage http://www.nomuraholdings.com/company/outline/

4. Blockchain adoption in Financial Services https://www.infosys.com/industries/financial-services/whitepapers/Documents/blockchain -adoption-financial-services.pdf

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The PESTLE / PESTEL analysis for Nomura Holdings Inc. is presented below:
Political
Economical
1. Political instability.
2. Post U.S presidential election effects.
1. Monetary policy
2. Market downturn
Social
Technological
1. Population demography.
2. Fiduciary duty.
1. Electronic trading.
2. Technology driven services.
3. Fraudulent activities and scam.
Legal
Environmental
1. Increasing financial regulatory based laws.1. Adverse environment.
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Political

1. Political instability: Political instability generally has a negative effect on the performance of Nomura. One such instance was UK’s decision to leave European Union. It was primarily because the EMEA headquarters was in London. Earlier, since UK was part of European Union, many of the policies were common to all the nations in European Union. Hence there was little or no effort to explicitly manage the transactions and other operations for European Union and UK separately. With Brexit, there could be more differences in policies and regulations adding to the cost of operations and administration costs. Political instabilities of such nature also give rise to additional costs that might have to be added to the cost structure of Nomura. The distribution could also be impacted. The other such example would be that of Ukraine crisis. Therefore, political instabilities have hurt the financial institutions in earnings and operations.

2. Post U.S presidential election effects: After the victory of President Donald Trump, yen value depreciated primarily because of expectation of growth in the US economy, for which the US Federal Reserve will have to increase interest rates. This increase in interest rates would cause depreciation in the values of yen as compared to US dollars. The stock prices also raised an increase in trade of equities and bonds and thereby increasing the revenues and clientele.

Economic

1. Monetary policy: Various expansionary monetary policies by Bank of Japan and other countries have a significant impact on the Nomura’s business. Negative interest rates were set by Bank of Japan to control the state of yields of various Japan Government Bonds. These negative interests caused reduction in the profits of financial institutions.

2. Market downturn: Market downturn causes reduced earnings for the organization as the earnings are based on the fees and commission charged by Nomura for managing the assets of its clients. In case of a market downturn, the investors would reduce the transactions and the amount invested negatively impacting the organization.

Social

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Technological

1. Electronic trading: Electronic trading is done to establish faster trades and with fewer resources. It also improves the efficiency and provides a variety of tools for the clients to utilize. Electronic trading brings in a lot of convenience which otherwise would have been very difficult. This convenience is also one of the contributory factors to the increased volume of trades executed. Since there is an increased competition across various capital markets in providing such a facility, the execution platform has been continuously suffering from margin erosion, reducing the net revenue generated.

2. Technology driven services: Latest technologies such as AI and big data have been used in providing numerous services. There have been other initiatives made to implement blockchain technology and robotic process automation. Robotic process automation is used to reduce costs and improve overall work efficiency. An asset management robo advisor was launched by “Funds Robo” and smartphone app such as “moneybe”. The app has the capability to predict indices like Nikkei Average and Dow Jones. Indices such as Nikkei Average and Dow Jones indicate the trends of how the industry is performing. Nikkei Average is the index consisting of some of the major companies based out of Japan in terms of market capitalization. Dow Jones on the other hand is an index relying on some of the major companies in the UK. These indices give a general impression of how the economy is performing and thus helps investors make the right decision.

3. Fraudulent activity and scams: Some of the scams and fraudulent activities happen via various tools which companies across the world use like email. Suspicious website links or attachments may cause a virus to infect the system. Thus, these risks posed by technological solutions will have to be guarded against.

Legal

This section is available in the 'Complete Report' on purchase.

Environmental

This section is available in the 'Complete Report' on purchase.

References

1. Bank of Japan keeps negative interest rate at 0.1%http://www.livemint.com/Politics/M2yitewz2BAT2tsgavSvBO/Bank-of-Japan-maintains-negative-interest-rate-at-01.html

2. Nomura 20-F http://www.nomuraholdings.com/investor/library/sec/20f/170626/20170626_e.pdf

3. EY – Asset Management http://www.ey.com/gl/en/industries/financial-services/asset-management

4. Services – Nomura http://www.nomuraholdings.com/services/

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