Market commentary: Nomura posts growing profit, Swiss Central Bank posts a CHF30 billion loss

Wednesday proved to be another bad day for stocks across the world, with US equities following European markets in the red for a second consecutive day. Overnight Asian markets also closed lower, with European markets dropping this morning extending losses began on Monday.

The Swiss Central Bank (SNB), which has a legal structure of a corporation, reported its first quarter results, starting 2015 with a massive CHF30 billion loss due to the sudden and sustained appreciation of the Swiss currency. Switzerland’s Central bank, whose shares are mainly held by the Cantons’ central authorities and commercial banks, surprised the market in January when it announced the immediate removal of its 3-year long fixed exchange rate against the Euro.

The announcement, released two days ahead of the ECB’s press-conference announcing the adoption of QE measures, resulted in a sudden appreciation of the Swiss Franc that jumped 15% against the Euro in matter of minutes, and has so far appreciated over 2% against the USD and the Japanese Yen.

These swings in the currency markets had negatively impact the value of the Central Bank’s foreign holdings and reserves, accounting for the larger than anticipated loss. The reported loss is twice as big as the negative charged the SNB recorded in 2013 when the price of gold plunged, and will surely prompt some investors and analysts to question the validity of the central bank’s decision of removing its currency cap against the Euro.

The Swiss National Bank is currently imposing negative rates on funds deposited with the Central Bank and it has recently cut further its deposit rate to -0.75 bp in an attempt to make CHF denominated assets unattractive, aiming at containing the demand for Swiss Franc that has fuelled the run up of the country’s currency against all major counterparties.

Will be interested to see whether the January monetary decision, taken in the name of price stability and ahead of the expected depreciation of the Euro will still prove a valid course of action, or if, in the eyes of investors around the world, the Swiss Central Bank has indeed lost most of it reputation and reliability as the regulator of one of the safe heavens in the financial world.

In contrast, Nomura Holdings Inc., a major Japanese bank and the country largest brokerage house, reported results for the first quarter of the year that beat analysts’ expectations on both profit and revenue. Net income at the bank jumped 34% form a year earlier to a total of JPY82 billion ($691 million), way ahead of the JPY58.6 billion forecasted by the market.

Nomura’s record profit was supported by a rally in the Japanese equity market that has surged to a 15-year high and by an increase in transactions’ volumes which has driven the bank's division performance.  Revenue also rose 13% year-on-year to JPY510 billion.

Brokerage commissions surged 38% in the first quarter of the year, while fees generated by the asset-management division also recorded a 28% increase to JPY54.3 billion. Profit from trading grew 3.9%, offsetting a 5.19% decline in investment-banking fees that only brought in JPY25.5 billion.

In addition to record profit at home, Nomura also made substantial improvements to its overseas operations, cutting their full year (ending in March) loss to JPY16.4 billion, down from as much as JPY24.7 billion a year earlier.

Despite being a sizable improvement, the bank missed its target of becoming profitable within the end of its fiscal year, prompting its CEO to announce a management’s reshuffle within its foreign divisions in a push for efficiency and return to profitability.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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