By Ritsuko Ando and Nathan Layne
TOKYO (Reuters) - Nomura Holdings T:8604, Japan's biggest investment banking and brokerage group, reported its first profit decline in seven quarters as waning enthusiasm over Prime Minister Shinzo Abe's economic stimulus policies brought down stock trading volumes.
Nomura and second-placed Daiwa Securities Group T:8601 processed a surge of transactions last year as optimism over "Abenomics", aimed at ending a decade of deflation, helped the Nikkei stock average T:N225 rise over 50 percent.
But many who invested heavily grew impatient for more drastic structural reform, leading to a drop in sales of mutual funds and a decline of around 9 percent in the Nikkei benchmark in the first three months of 2014.
Net profit for January-March fell 26 percent from a year earlier to 61.3 billion yen (354 million pounds), Nomura said in a statement on Wednesday. That still beat the 41 billion yen mean estimate from five analysts polled by Thomson Reuters, thanks to a strong showing in its fixed income and investment banking division.
Chief Financial Officer Shigesuke Kashiwagi said investors appeared to be seeking more concrete indications of economic recovery and assurances that the economy can withstand the impact of a sales tax hike on April 1.
"If an improvement in corporate profits becomes clear and employment shows further signs of recovery, then I think we can see a more positive impact from the macro environment," Kashiwagi told a news conference.
Even with the quarterly decline, profit for the fiscal year to March 31 doubled to 213.6 billion yen, the highest since the year to March 2006. Earnings per share also roughly doubled to 55.8 yen, beating Nomura's target of 50 yen by March 2016.
Nomura on Wednesday also said it would repurchase 100 million shares, or 2.6 percent of its outstanding stock, with 44 million of that set aside for those exercising stock options, or rights to buy shares.
Deutsche Bank analyst Masao Muraki said the buy-back amount, compared with last year's 40 million bought for stock options, was much bigger than he expected and showed the company is intent on improving returns for shareholders.
He forecast that Nomura's shares, which have fallen almost 30 percent since the start of the year, would rise in reaction to the buy-back announcement. The results came in after Wednesday's market close.
RETAIL DECLINE
Nomura earns more than half of its annual profit from individual investors, in contrast to global peers such as Goldman Sachs Group Inc N:GS, which focus mostly on corporate customers.
In the fourth quarter, weak investor sentiment pushed pre-tax profit at its retail division down 59 percent. The drop was also brought about by a 58 percent fall in sales of stock investment trusts as Nomura cut back on marketing new funds and shifted resources to longer-term asset management services to cater to Japan's ageing population.
Profit in Nomura's wholesale business, which includes overseas operations and investment banking, fell 6 percent from a year earlier but rose 20 percent from the previous quarter thanks to growth in its fixed income business.
Rival Daiwa, which is more dependent on domestic retail clients, also on Wednesday after the market close reported a 31 percent fall in fourth-quarter net profit to 33.2 billion yen.
Daiwa Chief Financial Officer Mikita Komatsu said the company had no plans to buy back shares, even though its full-year profit more than doubled.
Komatsu said investors, particularly those outside Japan, wanted the government to follow up on promises of reform, with policies including a reduction in corporate taxes.
"There's a demand for something reasonably specific," he said. "I hope there will be change - change that's noticeable."
Nomura's Kashiwagi said investors also expected the Bank of Japan (BOJ) to embark on further monetary easing.
"I personally understand the BOJ has done all it can since last April. But they are expecting an additional message to the market," he said.
(Additional reporting by Emi Emoto; Editing by Christopher Cushing and Jane Baird)