Lehman Executive Departures Mark ‘Turning Point’ for Nomura

The resignation of two former Lehman Brothers Holdings Inc. executives from Nomura Holdings Inc. (8604) may allow Japan’s biggest brokerage to revamp a business that has stumbled since it bought assets of the failed U.S. firm in 2008.

Jesse Bhattal, deputy president and chief of wholesale banking, quit Nomura yesterday, the Tokyo-based company said. Tarun Jotwani, head of Nomura’s global markets unit, also agreed to step down and his division will be split up, according to a person with knowledge of the matter.

They were among 8,000 Lehman employees who joined Nomura after the Japanese company bought the bankrupt Wall Street firm’s European and Asian operations. Bhattal, the first foreign member of the bank’s 14-member executive management committee, leaves behind a division bearing the brunt of a $1.2 billion cost-reduction plan after overseas operations posted their biggest loss in six quarters.

“His resignation illustrates a turning point for Nomura, and shows that its strategy to boost profit by hiring expensive bankers after the Lehman acquisition isn’t going to work,” said Yuri Yoshida, a senior analyst at Standard & Poor’s in Tokyo. “The business model, which Lehman perfected, is old and won’t work under the new regulatory regime and current market conditions.”

Retire From Banking

Bhattal, 55, chose to quit and will retire from the banking industry, Keiko Sugai, a Tokyo-based spokeswoman for Nomura, said by telephone yesterday. Chief Operating Officer Takumi Shibata will replace him temporarily.

Jotwani, 51, will also leave the firm, a person said, declining to be identified as the matter is confidential. The fixed-income and equities businesses under his division will be managed separately as part of the restructuring, the person said.

Joey Wu, a spokeswoman for Nomura in Tokyo, declined to comment. Jotwani and his assistant weren’t immediately available at Nomura’s office in London, where he is based.

Shares of Nomura rose 3.2 percent to 259 yen on the Tokyo Stock Exchange today, the highest closing price in four weeks. They tumbled 55 percent last year, slumping to 224 yen on Nov. 24, the lowest in at least 37 years.

Nomura ranked 10th in arranging equity offerings worldwide last year, down from No. 8 in 2009, the first full year after it bought the Lehman operations, according to data compiled by Bloomberg. The firm was 12th in mergers advisory, rising one spot from two years earlier, the data show.

Moody’s Review

Moody’s Investors Service said in November that it may cut Nomura’s credit rating from Baa2, the second-lowest investment grade. The review will consider the firm’s cost-reduction plans as well as its “failure to generate synergies and returns from the Lehman acquisition,” Moody’s said on Nov. 9.

“Either he is uncomfortable with what they are planning to do or Nomura wants to clear the decks to go ahead with a restructuring,” Christopher Wheeler, an analyst at Mediobanca SpA in London, said of Bhattal’s decision. “Nomura is caught in the middle as neither a big global or a niche-type of player. It was inevitably going to come under pressure to restructure. This suggests, one way or other, that this will probably be accelerated.”

Financial firms led by European and U.S. banks announced plans last year to eliminate more than 200,000 jobs as Wall Street’s biggest firms posted declines in third-quarter trading and investment-banking revenue. The contagion is spreading to Asia, with Bank of America Corp. dismissing Michael Cho as co- head of mergers and acquisitions in the region to cut costs, a person with direct knowledge of the matter said this week.

Stemming Exits

Bhattal, a former Rhodes Scholar at Oxford University, joined Lehman in 1993. He was appointed president of Nomura’s newly created wholesale division in March 2010 as the Japanese firm sought to stem the flow of resignations by former Lehman employees after guaranteed bonuses were paid out.

“Jesse has had a distinguished career, spanning nearly three decades in the industry,” Shibata said in a statement yesterday. “We would like to thank him for his contribution in leading the wholesale business through exceptionally difficult markets.”

Jotwani joined Lehman in 1995, holding posts including head of Indian operations. He was appointed chief of Nomura’s global markets division in March last year, overseeing the bank’s equities and fixed-income units.

Nomura posted a 46.1 billion yen ($600 million) loss for the three months ended Sept. 30, the first since the quarter ended March 2009, driven by declines in trading and investment banking income. Pretax losses from overseas operations swelled to 52.4 billion yen, the most in at least six quarters.

The Japanese firm had a record 708.2 billion yen loss in the year ended March 2009 after inheriting about 8,000 staff from Lehman, guaranteeing salaries and bonuses for some.

“Bhattal kept Lehman’s franchise and people and helped Nomura resurrect business ties with certain clients that the U.S. bank used to have,” said Masao Muraki, an analyst at Deutsche Bank AG in Tokyo. “But the point is, Nomura keeps posting losses overseas.”

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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