Japan's Nomura Holdings Inc <8604.T> and Australia's Macquarie painted a bleak picture of Asia's investment banking industry, citing a dearth of deals and frail markets.

Nomura saw its profit slip to the lowest in six quarters while Macquarie warned its investment banking, trading, securities and advisory businesses were unlikely to match the previous year's level, sending its shares down 3 percent.

Their downbeat updates mirror grim results from Western rivals such as Goldman Sachs and Citigroup and Bank of America Merrill Lynch as shaky financial markets cut into fees from trading, underwriting and advising on deals.

Nomura said hedge funds and other institutional investors pulled back from markets after volatility spiked in the wake of

the European debt crisis. Nomura's profits from trading halved and its overall net profit fell 80 percent in April-June from a year ago to just 2.3 billion yen ($27 million).

The market was out of control so their business was inevitably affected by bad markets like its rivals, said Azuma Ohno, a brokerage analyst at Credit Suisse Securities in Tokyo. Overall it wasn't a bad result.

In a trading update ahead of the group's annual general meeting, Macquarie said earnings in the quarter to June 2010 were slightly ahead of a year ago but were being pinched by falling global markets and the debt crisis in Europe.

The company, which is cutting its reliance on Australia by pushing into North America and Europe, therefore warned that it might not be able to make good on a forecast made in April of improved results for all of its businesses this financial year.

Macquarie is more of a traditional investment bank now. If markets are subdued, they will more than stumble, said Simon Burge, chief investment officer at Above The Index Asset Management. In effect, unlike earlier when they could control the pace, now the market does.

Macquarie pioneered a model of buying and pooling assets, listing them on an exchange and charging fees for managing them but over the last few years has migrated to a more conventional investment banking model.

Macquarie, dubbed the millionaire's factory for its senior bankers' hefty pay packages, is also sitting on large swathes of capital and liquid assets that are earning low yields and hurting earnings, analysts said.

Simply put most banks in the world are finding it difficult to refinance their existing assets, said CLSA analyst Brian Johnson. Conversely Macquarie is in the opposite position with the challenge being to deploy the excess funding.

OVERSEAS EXPANSION

Nomura's profit was the lowest since the January-March quarter when it lost more than $2 billion, burdened by costs related to its acquisition of the European and Asian assets of failed U.S. investment bank Lehman Brothers in 2008.

Nomura's performance was slowed by a sharp drop-off in its underwriting business. Japanese companies sold $5.2 billion worth of shares in the quarter, less than half of the $13.8 billion raised a year ago, Thomson Reuters data showed.

It still held on to its leading position in Japan's equity capital markets for the quarter, controlling 42.4 percent of underwriting, and is making progress overseas, including the U.S. where it is building a presence from scratch.

Macquarie, which earns nearly half its income in Australia, has suffered from a slowdown in deals. M&A activity targeting the Australasian region fell by 28 percent to $65.3 billion and equity issuances fell by 80 percent year to date.

Macquarie stopped short of giving an indication of where it expected its first half or 2011 earnings to be. A Reuters poll of eight analysts on average forecast Macquarie's first-half profit would rise 38 percent to A$660 million ($594 million).

Macquarie's shares tumbled as much as 6.7 percent and closed at their lowest in more than three weeks.

Prior to the announcement, Nomura shares closed 1.6 percent lower at 481 yen, in line with the securities sector subindex <.ISECU.T>. Nomura's stock has fallen 29 percent since the start of 2010, underperforming a 25 percent fall in the subindex.

Australia Japan Goldman sachs Lehman brothers