Nomura Holdings Inc. aims to derive almost half of its $1 billion savings plan from Europe, where it lost the most money last year, as Japan’s biggest brokerage scales back its global ambitions.
The company will reduce costs by $450 million in Europe and the Middle East, $210 million in the Americas and $340 million in Asia including Japan, Nomura said in a presentation to investors in Tokyo today. About 45 percent of the cuts worldwide will be from trimming jobs, with the rest coming from other operational expenses, it said. The bulk of the job losses will be in investment banking and equities, the company said.
The changes follow a four-year struggle to build a presence abroad, beginning with the 2008 purchase of Lehman Brothers Holdings Inc.’s European and Asian units. Koji Nagai, 53, who took over as chief executive officer from Kenichi Watanabe last month amid an insider-trading scandal, is pulling back after foreign operations reported nine consecutive quarterly losses.
“There was a consensus that the cuts would center on Europe, but they’re smaller than we expected,” said Takehito Yamanaka, an analyst at Credit Suisse Group AG in Tokyo, who has an “outperform” rating on the stock. “It’s good to see the plans for substantial reductions in Asia, as the region has been generating losses. Curtailing the job cuts and reducing operational costs instead eases concern about revenue dropping.”
Shares of Nomura rose 2.3 percent to 266 yen in Tokyo today, outpacing the benchmark Topix index’s 0.1 percent gain, before Nagai announced the changes. Bloomberg News reported the proposed expense reductions before the investor meeting.
In Europe, Tokyo-based Nomura will cut jobs for managing directors and back-office staff, two people with direct knowledge of the matter said. The Japanese firm will expand its fixed-income business globally and reassign people from other divisions to join the unit, the people said.
Nomura will focus on improving profitability in wholesale banking, with fixed income driving the business, Chief Operating Officer Atsushi Yoshikawa told investors today. That will mean cuts across the equities and investment banking businesses.
The investment-banking division, which advises on mergers and underwrites share and bond issues, will concentrate on the financial institutions, natural resources, energy, funds and retail sectors, Yoshikawa said. Nomura will consider joint ventures to spur cross-border operations, he said.
“Our response in investment banking is good management practice in a tough cycle,” said John Phizackerley, chief executive officer for Europe, the Middle East and Africa, in a telephone interview. “When conditions improve, I’m equally optimistic we will increase our presence in areas where we have a competitive advantage.”
Nomura announced today that it would be reorganizing its equities franchise into three separate segments. All execution services, including cash, programs and electronic products, for the Americas, Europe, Middle East, Africa and Asia ex-Japan will be folded into its independent Instinet unit, the standalone agency brokerage it acquired in 2006.
That could result in about 200 job losses in cash equity sales and trading, according to one person familiar with the plans who declined to be named. Instinet’s Japan office was merged into Nomura in August.
“There will be a full consolidation of global equities technology, which is very expensive to build and run,” Glenn Lesko, chief executive officer in Asia for Instinet, said by phone.
“What we’re doing in equities is a strategic response to a secular trend, more than a cyclical one,” said Phizackerley. “There is a shift in the equity market, with the volume of electronic trading rising significantly. Nomura has, in Instinet, a unique proposition which answers that challenge.”
The investor and corporate solutions arm, including derivatives, convertibles, prime services and equity capital markets, and research branches at Nomura will remain unchanged.
“When you consolidate two entities into one platform, there will be aggregate savings across all of the units from corporate, which include technology, down to the front office personnel,” John Adair, co-head of equities for Asia excluding Japan at Nomura, said in a phone interview, adding that no decisions around staffing had been made yet.
Nomura will begin eliminating jobs in Europe this month, three people with knowledge of the situation said earlier. No final decisions on job cuts have been made, they said.
Europe accounted for about 20 percent of Nomura’s total costs for the year ended March 31, while the U.S. represented 12 percent, the firm’s financial statements show. Excluding Japan, Asia accounted for 3.3 percent.
The company generated 14 percent of revenue from Europe last quarter, 11 percent from the Americas and 2 percent from Asia excluding Japan, according to data compiled by Bloomberg. The remaining 73 percent came from Japan.
Nomura posted a 12.1 billion yen pretax loss from businesses abroad in the three months ended June. Europe lost 16.4 billion yen, Asia lost 1.9 billion yen and the Americas generated a pretax profit of 6.3 billion yen.
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.
“We can’t say it was a success,” Nagai said of the Lehman purchase at today’s meeting.