Executive Summary / Key Takeaways

• Recurring Revenue Inflection: Fourteen consecutive quarters of net inflows in Wealth Management and ten in Investment Management have created a JPY100+ trillion asset base that generates stable fees covering 70% of divisional costs, fundamentally shifting Nomura's earnings profile from cyclical to structural.
• Macquarie Acquisition as Game-Changer: The $1.8 billion purchase of Macquarie (MQG)'s U.S. and European asset management business adds $166 billion in AUM overnight, transforming Nomura from a Japan-centric player into a global top-tier asset manager and directly advancing the 2030 Vision's scale targets.
• Wholesale Division Self-Funding Growth: Despite fixed income headwinds from product mix gaps, Global Markets equities revenue hit record highs while Investment Banking captured top Japan M&A rankings, demonstrating the division's ability to generate profits without capital calls.
• Capital Efficiency at Target: ROE of 10.89% exceeds the 2030 Vision's 8-10% target for six consecutive quarters, while CET1 ratio of 12.9% sits comfortably above the 11% floor, giving management flexibility to balance growth investments with shareholder returns.
• Operational Risks Contained: Phishing scam losses peaked at JPY6.6 billion in Q1 FY2026 but are declining as passkey authentication rolls out, representing a manageable cost of maintaining trust rather than a systemic threat to the digital wealth franchise.

Setting the Scene: A Century-Old Franchise Reborn

Nomura Holdings, founded in 1925 and headquartered in Tokyo, spent its first ninety years building Japan's premier securities franchise. For decades, the story was simple: dominate Japanese equities trading and investment banking, accept the cyclicality of wholesale markets, and leverage domestic relationships. That model worked until it didn't. By the early 2020s, management recognized that pure-play wholesale banking offered limited growth and unacceptable earnings volatility. The 2030 Management Vision, unveiled in May 2024, explicitly rejected this legacy model, targeting consistent ROE of 8-10% and over JPY500 billion in pre-tax income through diversification into stable, recurring revenue streams.

The industry structure made this pivot necessary. Japanese megabanks—MUFG (MUFG), SMFG (SMFG), and MFG (MFG)—control lending relationships that feed their investment banking arms, while global bulge-bracket firms like Goldman Sachs (GS) deploy far larger balance sheets and technology budgets. Nomura's competitive moat has never been scale; it's been specialized expertise in Japanese markets, deep client trust built over generations, and regulatory licenses that are nearly impossible to replicate. The strategic question was how to monetize these advantages without competing directly on balance sheet size. The answer lay in asset gathering: transforming from a transaction-based house into a fee-based manager of other people's money.

This shift exploits a structural tailwind. Japan's "flow from savings to investment" has become a permanent feature as aging demographics and low interest rates push retail investors toward equities and investment trusts. Nomura's 119-branch network and 4 million+ workplace service units position it as the primary beneficiary. Meanwhile, corporate governance reforms have unleashed M&A activity, creating advisory opportunities where Nomura's top-tier league table rankings command premium fees. The company sits at the intersection of two powerful trends: retail asset accumulation and corporate restructuring.

Technology, Products, and Strategic Differentiation

Nomura's core technology advantage isn't a single platform but an integrated architecture connecting retail distribution, asset management, and wholesale execution. The Wealth Management division's digital infrastructure enables 14 consecutive quarters of net inflows by offering discretionary investments, insurance products, and workplace services through a unified client experience. This creates switching costs: once a client consolidates their financial life within Nomura's ecosystem, moving elsewhere becomes prohibitively inconvenient. The 70% recurring revenue cost coverage ratio means fees from existing assets cover the majority of divisional expenses, making each new inflow disproportionately profitable.

The Investment Management division's technology stack demonstrates similar network effects. The acquisition of Macquarie's U.S. and European business brings $166 billion in AUM onto Nomura's platform, but the real value lies in integration. By combining these assets with Nomura Capital Management (private markets) and Nomura Corporate Research and Asset Management (high yield), the company creates a unified global brand under Nomura Asset Management International. Institutional clients increasingly demand multi-asset capabilities from a single provider. The ability to offer Japanese retail clients access to global private markets—or U.S. institutions access to Asian equities—creates cross-selling opportunities that pure-play competitors cannot match.

The Wholesale division's technology moat centers on its self-funding principle. Unlike competitors who allocate capital from headquarters, Nomura's Global Markets and Investment Banking businesses must generate their own RWA capacity through profits. This creates ruthless discipline: every position must earn its keep. The record equities revenue in Q2 FY2026—up 16% quarter-on-quarter—reflects successful risk-taking in U.S. derivatives and Asia-Pacific flows, while fixed income held steady despite macro headwinds. The 81% cost-income ratio, though still elevated, improved from 84% year-on-year, showing that technology investments in execution services are yielding operational leverage.

R&D investments manifest through Laser Digital, the digital assets subsidiary that turned profitable in Q3 FY2025 after launching in 2022. While crypto remains volatile, management views it as a "regular asset class" in the making. This positions Nomura ahead of traditional competitors who have shunned the space, creating a first-mover advantage if institutional adoption accelerates. The passkey authentication system, introduced in October 2025, represents another R&D output—one that directly addresses the JPY11.4 billion phishing losses incurred in the first half of FY2026. Cybersecurity thus serves as a competitive differentiator that reinforces trust, the ultimate asset in wealth management.

Financial Performance & Segment Dynamics

The numbers validate the transformation thesis. Group-wide net revenue for Q2 FY2026 was JPY515.5 billion, down 2% quarter-on-quarter, but this masks underlying strength. Excluding the JPY56 billion real estate gain in Q1, net revenue actually rose 10% and net income jumped 40%. More importantly, ROE hit 10.6%—the sixth consecutive quarter achieving the 2030 target. This consistency demonstrates that the recurring revenue base has reached sufficient scale to buffer wholesale volatility.

Wealth Management's JPY116.5 billion in Q2 net revenue (up 10% quarter-on-quarter) and JPY45.5 billion in pre-tax income (up 17%) represent the division's highest profit level in a decade. The 39% pre-tax margin reflects operational leverage: recurring revenue grew to JPY50+ billion while costs remained controlled. Total sales dipped JPY300 billion to JPY6.4 trillion, but this was entirely due to a JPY1 trillion+ tender offer in the prior quarter—core flow revenue actually increased. The division's ability to generate JPY289.5 billion in net inflows during a quarter with market volatility proves that client relationships are sticky and the "flow from savings to investment" is structural, not cyclical.

Investment Management's performance is even more striking. Q2 net revenue of JPY60.8 billion (up 20%) and IBIT of JPY30.7 billion (up 43%) reflect both market appreciation and net inflows. AUM reached JPY101.2 trillion, a record high on the 10th consecutive quarter of net inflows. The JPY498 billion in quarterly net inflows is particularly impressive given that JPY525 billion went into investment trusts while international businesses saw JPY26 billion in outflows—showing domestic strength offsetting global headwinds. Alternative assets under management hit JPY2.9 trillion, a new high that diversifies revenue away from traditional beta exposure.

The Wholesale division's JPY279.2 billion in Q2 net revenue (up 7%) and JPY53.1 billion in IBIT (up 27%) demonstrate self-funding growth. Global Markets equities revenue of JPY113.8 billion hit a record, driven by Americas flows and U.S. derivatives. Investment Banking's JPY43.5 billion (up 15%) reflects strong M&A pipelines, with Nomura ranking first in Japan-related deals and 15th globally. The 81% cost-income ratio improved despite revenue growth, showing that technology investments are yielding scale benefits. Fixed income revenue of JPY121.9 billion was flat, but this masks strength in spread products (credit, securitized) offsetting macro weakness—exactly the diversification management promised.

The new Banking division, launched in April 2025, contributed JPY12.9 billion in Q2 net revenue (flat quarter-on-quarter) but saw IBIT decline 12% to JPY3.2 billion due to JPY3.1 billion in Macquarie integration costs and depreciation from the May 2025 core system upgrade. This is transitional noise, not structural weakness. The division's KPIs—loans outstanding and investment trust balances—remain buoyant, and the upcoming deposit sweep service in FY2026/27 will add another recurring revenue stream.

Outlook, Management Guidance, and Execution Risk

Management's commentary reveals confidence tempered by realism. CFO Hiroyuki Moriuchi explicitly stated that the 8-10% ROE target is a minimum, not an aspiration: "We want to maintain at least the 8%, which is the lower end of the range... we are currently building up the earnings capability." This frames the target as a floor during downturns, not a ceiling during booms. The first-half ROE of 11.3% and Q2's 10.6% show the company operating above its minimum threshold, suggesting upside if markets remain stable.

The Macquarie acquisition closed on December 1, 2025, ahead of schedule. Management expects it to depress CET1 ratio by 0.7 percentage points, but with CET1 at 12.9% post-close, the ratio remains well above the 11% floor. The strategic rationale extends beyond AUM: the partnership includes co-development of investment strategies and distribution of Macquarie's private funds to U.S. high-net-worth clients. This creates a two-way street—Nomura gains global scale while Macquarie accesses Japanese retail distribution. The JPY3.1 billion in Q2 integration costs are front-loaded; management expects synergies to emerge in FY2027.

Wholesale guidance is nuanced. Moriuchi noted that October 2025 net revenue was "solid" and the pipeline is building nicely, particularly in Japan M&A and cross-border deals. However, he acknowledged that ECM is "a bit weak" compared to typical years, though expecting recovery. The key assumption is that corporate governance reforms in Japan continue driving deal flow, and that U.S. deregulation under the Trump administration benefits M&A activity. If either assumption falters, Wholesale's growth could disappoint.

Wealth Management's outlook is more robust. October net revenue was "well above" Q2 levels, with recurring revenue continuing to rise. Management emphasized that client literacy has improved to the point where market shocks like April 2025's volatility didn't trigger panic selling. This behavioral shift is critical—it means the recurring asset base is less likely to experience flight during downturns, making the 70% cost coverage ratio durable.

Investment Management faces headwinds from ETF outflows in Q1 FY2026, which management attributed to "activities of specific investors" that stabilized by June. The bigger risk is American Century Investments valuation volatility, which impacted Q1 and Q3 results. Management has implemented hedging strategies but admits "volatility cannot be guaranteed to come to zero." This remains a key variable for divisional earnings.

Risks and Asymmetries

The Macquarie integration presents execution risk. While management says consultations are "proceeding extremely smoothly" with "no critical issues," cultural integration of 1,000+ employees across different regulatory regimes is never seamless. If synergies fail to materialize, the JPY200+ billion acquisition price could pressure returns. The asymmetry is positive if Nomura successfully cross-sells Japanese products to Macquarie's U.S. clients, potentially doubling the revenue per client.

Wholesale concentration risk in securitized products and private credit (SPPC) is rising. Management acknowledges this, stating they "have to be selective in deciding which deal to do" and "SPPC portion is not going to be grown rapidly." This is prudent but limits growth. If credit spreads widen significantly—as they did in March 2025 when "domestic investors were on the sidelines"—revenue could drop 20%+ in a quarter, as seen in Fixed Income's Q4 FY2025 decline. The asymmetry is that Nomura's smaller scale versus global peers means it can be more agile in risk-off scenarios, but also that it lacks the diversification to absorb large shocks.

Phishing scams remain an operational tail risk. While losses peaked at JPY6.6 billion in Q1 and fell to JPY4.8 billion in Q2, management admits "the number and scale of damages have decreased from the April peak" but hasn't eliminated them. The passkey system launched in October 2025 should reduce incidents, but any major breach could destroy client trust—the foundation of the wealth franchise. The asymmetry is that Nomura's proactive response and external validation of security protocols could actually strengthen its brand as "the most trusted partner."

Capital allocation presents a tension. Management is committed to 50%+ total payout ratio, but also sees "high-quality deals and opportunities" in Wholesale that require RWA capacity. The CET1 ratio will drop to ~12.2% post-Macquarie, leaving less room for buybacks. If management prioritizes growth over returns, shareholders could see payout ratios compress. Conversely, if they return capital aggressively and miss wholesale opportunities, long-term competitiveness could suffer.

Valuation Context

Trading at $7.85 per share, Nomura's market capitalization stands at $23.91 billion with an enterprise value of $10.36 billion (reflecting substantial cash). The stock trades at 10.1 times trailing earnings and 2.1 times sales, a significant discount to global peers. Goldman Sachs commands 17.6 times earnings and 4.5 times sales, while Japanese megabanks trade at 13.5-15.0 times earnings despite lower ROEs. Nomura's 10.89% ROE exceeds its own 2030 target and compares favorably to MUFG's 6.0%, SMFG's 4.8%, and MFG's 9.3%, yet the valuation multiple doesn't reflect this outperformance.

The 4.33% dividend yield, supported by a 42% payout ratio, provides income while investors wait for the transformation story to be recognized.

Free cash flow is negative due to working capital changes and integration costs, but operating cash flow before these items is robust.

The balance sheet shows a debt-to-equity ratio of 10.1, which appears high but is typical for financial institutions and is offset by strong Tier 1 capital ratios.

Relative to historical cycles, Nomura trades at a discount to its own 5-year average P/E of ~12x, reflecting skepticism about the sustainability of wholesale profits. However, the recurring revenue base—now covering 70% of wealth management costs and driving 10 consecutive quarters of IM inflows—has fundamentally changed the earnings quality. If the market awards a multiple even halfway between Japanese banks (13-15x) and global investment banks (15-18x), the stock has 30-50% upside purely from re-rating.

Conclusion

Nomura stands at an inflection point where its 2030 Vision is no longer aspirational but measurable. Fourteen quarters of wealth management inflows and ten quarters of investment management growth have created a JPY100+ trillion asset base that generates stable fees exceeding JPY370 billion annually. This recurring revenue engine covers the majority of divisional costs and provides a floor for earnings during wholesale downturns—a structural shift from the cyclical trading house of the past.

The Macquarie acquisition validates the global ambition, adding $166 billion in AUM and establishing a platform for further expansion. While integration risks exist, the strategic logic is sound: combine Japanese distribution with global investment capabilities to capture cross-border flows. The wholesale division's self-funding principle ensures disciplined growth, and record equities revenue demonstrates that Nomura can compete globally in its chosen niches.

The investment thesis hinges on two variables: execution of the Macquarie integration and maintenance of wholesale momentum despite macro headwinds. If management delivers on both, the market must recognize that Nomura's earnings quality has fundamentally improved. At 10x earnings with a 10.89% ROE and 4.33% dividend yield, the stock offers asymmetric upside with limited downside protection from the recurring revenue base. The transformation from trading house to global asset powerhouse is no longer a story—it's a balance sheet reality.