Nomura to Cut $1 Billion of Costs in Wholesale Unit

Nomura CEO Koji Nagai
Koji Nagai president and chief executive officer of Nomura Holdings Inc. Photographer: Tomohiro Ohsumi/Bloomberg

Nomura Holdings Inc., Japan’s largest brokerage, plans to cut an additional $1 billion of costs by March 2014 as it retreats from a global expansion under Chief Executive Officer Koji Nagai.

The reductions will center on wholesale operations, which include investment banking and equities, spokesman Eiji Miura said at a briefing after Nagai told 450 managers of the plans in Tokyo today. Nomura will cut jobs, mainly at overseas units including Europe, two people with knowledge of the matter said.

The move marks Nagai’s first step toward reversing an expansion abroad overseen by predecessor Kenichi Watanabe, who stepped down a month ago amid an insider-trading scandal. Nomura, which has posted losses overseas for nine straight quarters, implemented a $1.2 billion cost-cutting program last year after expenses swelled following the purchase of Lehman Brothers Holdings Inc.’s Asian and European businesses in 2008.

“A billion dollars is perhaps in the upper range of what market participants expected,” said Azuma Ohno, a Tokyo-based analyst at Barclays Plc, who rates the shares equalweight. “Job cuts are unavoidable given the severe global business environment. Nomura will have to explain how the reductions will help to improve its bottom line.”

European Cuts

The brokerage employed 3,975 people in Europe and 2,423 in the Americas, mostly in New York, among its 35,063 staff globally at the end of June. Operations in Europe have taken the brunt of efforts to trim costs over the past year, with the region accounting for 450 of the 560 jobs cut worldwide as the sovereign debt crisis roiled markets and slowed economic growth.

Most of Nomura’s European employees work in its wholesale unit, which includes investment banking and trading operations in London.

The bank will strengthen its cross-border businesses including mergers and acquisitions advisory, Nagai, 53, said, according to one of the people, who asked not to be identified because the meeting was private. The company will bolster cooperation between divisions across regions, the person said.

Shares of Nomura, which had earlier climbed as much as 2.7 percent, rose 0.4 percent to 258 yen at the close of trading in Tokyo, while the Nikkei 225 Stock Average declined 1.6 percent. The stock, which touched a 37-year low in November, has gained about 11 percent this year, compared with the Nikkei’s 4.6 percent advance.

“Investors will probably wait to see how effective the cost-reduction measures will be,” said Takehito Yamanaka, a Tokyo-based analyst at Credit Suisse Group AG, who rates the stock as outperform. “If the restructuring efforts kick in and help improve Nomura’s Europe business, we may see some more bullish momentum for the shares.”

‘Mother Market’

Nagai, who took charge of the domestic securities unit in April before becoming CEO on Aug. 1, signaled last month that he will focus on business at home and elsewhere in Asia, describing the region as the “mother market.”

“I want to make a new business strategy free from the past,” Nagai said at a news briefing on July 26.

Net income tumbled 89 percent in the three months ended June from a year earlier to 1.9 billion yen as investment banking fees and brokerage commissions fell, Nomura reported on July 26. It posted a 12.1 billion yen pretax loss from overseas operations, led by Europe.

Lehman Architects

Watanabe, 59, and former Chief Operating Officer Takumi Shibata, architects of the Lehman purchase, stepped down in July after Japan’s financial regulator found that employees leaked information on share sales managed by the company. Staff gave tips on equity offerings by Mizuho Financial Group Inc., Inpex Corp. and Tokyo Electric Power Co. to traders who short-sold the stocks before the issuances were announced in 2010.

The Financial Services Agency on Aug. 3 ordered Nomura to improve its securities operations by implementing remedies the brokerage identified after an internal investigation. Nomura has vowed to enhance internal controls, prevent similar incidents and regain public trust under Nagai.

With its reputation tarnished, Nomura lost underwriting deals. The firm was demoted from leading Japan Airlines Co.’s $8.4 billion initial public offering and ceded its rank as the country’s top bond underwriter as issuers dropped the bank.

It still holds the No. 1 position in Japan for mergers and acquisitions advice as well as equity underwriting, according to data compiled by Bloomberg.

Globally, Nomura has climbed to 10th in mergers advice this year from 12th in all of 2011, the data show. It is also 10th for managing share sales, unchanged from last year.

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