Nomura Holdings has unveiled plans to cut $1bn of costs at its struggling investment bank, firing dozens and pulling back from businesses as it embarks on yet another sweeping overhaul of its international operations.
Japan’s largest securities firm will cull about 150 jobs across the Americas and Europe, the Middle East and Africa on top of reductions in Hong Kong and Singapore as part of the overhaul, people with knowledge of the matter said. Nomura executives told investors they intend to shrink the bank’s presence in dicier trading businesses overseas in favour of "risk-light" transactions for clients.
"To restart this company" as a new Nomura, "I have to commit myself to proceeding quickly with efforts to build a muscular base," Chief Executive Officer Koji Nagai told investors. "We realised that as long as we continue with the way we have done business thus far, Nomura won’t be able to get itself out of the current situation."
Nomura’s operations outside Japan have lost money for four straight quarters, buffeted by its stop-start international expansions as well as headwinds in Europe. Low interest rates, sluggish economies and fierce competition from the U.S. have left rivals including UBS Group AG, BNP Paribas SA and Deutsche Bank AG confronting weak results, senior departures and even merger talks in the region.
In Europe, the Tokyo-based bank has struggled to generate profits ever since it bought Lehman Brothers Holdings Inc.’s operations there in 2008. The bank’s job cuts there will mostly target rates and credit traders in London, one of the people said, asking not to be identified as the numbers aren’t public.
Eight out of nine employees in the Singapore equity research operation have been let go, the people said. Nomura also cut at least 10 jobs at its equities business in Hong Kong, one of the people said.
'Right-sizing' the business
Nomura said it will "right-size" its wholesale business, which is led by Steven Ashley and made up of investment banking and global markets divisions. That includes scaling back areas including secondary trading in emerging markets as well as G-10 rates, foreign exchange and flow credit cutting costs in flow business in Europe, the Middle East and Africa by 50%, optimising cash equities including by consolidating its Instinet electronic trading platform in Asia.
Most of the wholesale cost cuts will be completed by March 2020, Nomura said. The company also said it will eliminate at least 30 of its 156 retail brokerage branches dotted across Japan.
Nagai commissioned the review in January after the bank posted its biggest quarterly loss since the global financial crisis, thanks partly to a goodwill writedown on its 2008 acquisition of Lehman Brothers assets -- the deal that hobbled the bank’s European operations.
External pressures are also at play. In fixed income, "there’s heavy competition from U.S. banks in Europe," said Meziane Lasfer, professor of finance at Cass Business School in London. A smaller player such as Nomura "that doesn’t have the scale, can’t invest so it’s better to come out of the market," he said.
Credit rating companies have been keenly anticipating Nomura’s latest revival attempt. S&P Global Ratings said in February that it may consider reviewing the firm’s debt ratings if its restructuring efforts are unsuccessful and earnings power remains weak. Moody’s Investors Service said in November that it may downgrade the rating if the bank can’t improve profitability without adding risk to its balance sheet.
Shares of Nomura closed 1.5% lower in Tokyo, erasing their gains for this year and underperforming the benchmark Topix index, which has climbed 8.4%.
'Likely too late'
"This sort of cost-cutting could save Nomura from being unprofitable in the next fiscal year; it’s likely too late for this one. But if the company cuts its fixed-income, currencies and commodities business, what’s exactly left outside Japan?"
Nomura also said it will simplify its corporate structure by reducing the number of functions by half. Excluding the internal audit team, Nomura has 10 corporate areas ranging from finance to risk management and compliance. These will be streamlined into five to avoid duplication and reduce costs.
"To put the latest reform of our platform into one word, it’s simplification," Nagai said. "The urgent task right now is for us to proceed with the reconstruction of the platform with full force to put the company back on a growth path as soon as possible."