Nomura's Quiet Pivot: From Self-Funding Discipline to a Bond-Buying Retail Boom

A 10.9% ROE quarter with an 85% wholesale expense ratio — but the real news is what Nomura started saying about Japanese households and what it stopped saying about its own balance sheet

NMR · Earnings Call · 2026-10-28

The quarter that looked like a step back

On the surface, Nomura's fiscal second quarter was a deceleration story. Group net revenue fell 12% quarter-on-quarter to JPY 607.5 billion, income before taxes dropped 30% to JPY 148 billion, net income fell 29% to JPY 103.7 billion, and ROE slid from the first quarter's exceptional level to 10.9%. The half-year ROE of 13.3% is the real headline, and it is a good one against a May 2026 target of 10–12% "or higher" toward 2030 — four-division pre-tax profit was up 50% year-on-year and stable revenue roughly 1.6x. But the tell is in the composition. Wholesale expense ratio — a fresh top-three keyword for this company — came in at 85% against an 80% goal, and two analysts pounced on it. Moriuchi's answer was candid: “On wholesale expense ratio, 85%, a bit higher than we had targeted... Operating deleverage is a major key, and if there is a business that does not contribute to operating deleverage, then Wholesale should not engage in such business.” — Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-10-28 Note the vocabulary shift: the answer is built on economy of scale and ROE hurdle rates, not on self-funding.

What Nomura stopped saying

For at least four consecutive calls, "self-funding" was the load-bearing word in the Wholesale story. In April 2026 the CFO said plainly: “Regarding wholesale, as you know, self-funding — based upon self-funding within the border of additional capital, balance sheet is used, RWA leverage exposure is used within that framework.” — Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-04-24 It was the answer to every capital question, and it was still a top-ten keyword as recently as last quarter. This quarter it is a decliner; self funding has fallen out of the narrative and been replaced by the softer, more elastic language of scale merit and hurdle rates. That is worth flagging: the discipline argument is being reframed from an accounting constraint into an aspiration. When a bank swaps a hard budget for a soft target, it usually means the budget is about to be tested.

The genuinely new theme: Japanese households move into direct financing

The company's own keyword ranking flipped this quarter, with corporate bond and Government bond taking the top two slots — neither was near the top of the list in any recent quarter. The operating evidence is stark: total sales of JPY 7.4 trillion, down 13% QoQ, but bond sales up 66%, equities sales down 21%, investment trusts down 14%. Wealth management recurring revenue hit a record JPY 66.7 billion (+13%), net inflows into recurring revenue assets hit an all-time high JPY 755.4 billion (+40%), and the recurring revenue cost coverage ratio reached 79%. Moriuchi was asked directly about JGBs for individuals as a deposit substitute, and his answer went well beyond product minutiae: “The sensitivity to rates goes up, and then in the capital market, in direct financing, customers tend to have more interest in such products. Government bonds as an entry point is a product that is easily accessible by customers.” — Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-10-28 Taken with the Banking Division's deposit sweep growth and core deposits discipline keeping funding costs in check — a theme showing up across the global bank earnings tape this week — the pitch is that Nomura is the plumbing for a savings-to-investment migration, not just a trading house. He made it explicit in the closing address:

Regarding the domestic market, there is a major change in the financing cycle, and I think we are beginning to see such emerging trends. For the first time in a long period, this may become a major theme.
Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-10-28

That is a stronger claim than the numbers support yet. When pressed on whether the corporate bond pipeline is real, the answer was qualitative — "quite robust pipeline" — and the June-quarter comparison benefits from one SoftBank-size primary deal that underwriters confirmed was heavily subscribed. Still, the ECM/DCM league-table sweep (bookrunner on nine of Japan's ten biggest deals in the half) corroborates breadth.

Data centers: the wave Nomura is deliberately not surfing

The most instructive contrast is Data center and hyperscaler finance — new entrants to Nomura's keyword set, arriving at the same moment the global AI data center theme is visibly fading in the tape: it is a 360-day advancer but a 90-day decliner, with roughly fifty names down against a handful up. Nomura's peers in Japan are being aggressive; Nomura is not, and says so. “We are not a commercial bank, so our business does not use a huge balance sheet. In the area of data center, big players, mega deals are on the market, but we are skipping such deals. Instead, we are going after medium-sized deals.” — Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-10-28 The sizing is almost comically small relative to the noise: SPPC activity as a whole is "only a few percentage points" of the relevant base, and data-center exposure sits inside that. Asked about CoreWeave-style credit stress and hedge-fund deleveraging, Moriuchi was unflappable — “Are we hit in our positions? No. We have not seen such phenomenon... we are also controlling the overall total risk, credit worthiness, off-taker credit.” — Hiroyuki Moriuchi, Chief Financial Officer (CFO) · 2026-10-28 The pitch is structuring capability over balance sheet, which is exactly the right posture if the AI-infrastructure credit cycle has turned. It is also the fourth or fifth call in a row where risk taking and concentration have been managed down rather than up — a consistent, if unexciting, pattern rather than a new discovery.

The fog of October

Management flagged a slow start to the third quarter in Wholesale and flat revenues in Wealth Management, attributed to Geopolitical risk, rate uncertainty and an event-heavy calendar. The seed-capital IM Division valuation loss at American Century-related holdings adds a volatile, hard-to-model line. And CET1 slipped 0.6 points to 12.6% while the CFO committed to a 40%+ payout ratio and 50%+ total payout — leaving the buyback timing question exactly where it was a year ago. The setup, then, is a company whose earnings power has genuinely improved (13.3% half-year ROE is not an accident of one strong quarter), whose newer thematic exposure is small enough to be safe and small enough to be irrelevant, and whose most interesting bet is a structural claim about Japanese retail behaviour that will take several quarters to prove. The tape offers no help here — no price series is available for this name in the current context — so the burden shifts entirely to the bond flows. Watch the next quarter's bond sales line and the recurring revenue cost coverage ratio. If the funding-cost discipline holds and the DCM pipeline converts, the "major theme" line will look prescient. If bond sales normalise as the SoftBank deal rolls off, it was a good quarter dressed as a structural shift.