Nomura Holdings Inc., Japan’s largest securities firm, may buy an Asian investment bank or broker to tap the region’s economic growth and increasing number of affluent people, Chief Executive Officer Koji Nagai said.
The securities firm is reviewing “a couple” of potential acquisition targets in Asia, Nagai, 53, said in an interview in Tokyo yesterday. Countries including China, India, Indonesia, Thailand and Vietnam are of interest, he said, without elaborating on how much Nomura would be willing to spend or which companies are being considered.
His remarks underscore a goal of making the region Nomura’s “mother market” as Nagai, who took over as CEO last month, seeks to stem nine quarters of losses overseas and add market share at home after an insider-trading scandal. The company said it plans to trim $1 billion of costs, with almost half to come from Europe, the region that lost the most money last year.
“The moves announced so far make sense in cutting costs, adopting a more focused strategy and emphasizing the core markets of Japan and the rest of Asia,” said David Marshall, an analyst at Creditsights Singapore LLC. “A key issue will be convincing the best people to stay and that Nomura has a viable future business outside Japan.”
The brokerage may buy assets or set up joint ventures with local firms to get access to facilities and operations that it doesn’t have, Nagai said. Tokyo-based Nomura has failed to sustain profit abroad since it acquired Lehman Brothers Holdings Inc.’s Asian and European operations in 2008.
“We want to operate fully licensed brokerage operations in Asia, including retail,” Nagai said. “It’s not realistic to do this from scratch.”
The company generated 2 percent of revenue from Asia, excluding Japan, last quarter, 14 percent from Europe and 11 percent from the Americas, according to data compiled by Bloomberg. The remaining 73 percent came from Japan.
Nagai may find China, India and Southeast Asia tough markets to crack with deeply entrenched competitors.
In China, the five top-ranked managers of equity and bond sales this year are local investment banks, according to data compiled by Bloomberg. In India, fees for managing such deals or advising on takeovers are a fifth of those in China, according to April estimates from New York-based researcher Freeman & Co.
“If Nomura wants to do wholesale business in Asia, they will need operations in China as there are opportunities there,” said Masao Muraki, a Tokyo-based analyst at Deutsche Bank AG. “Asia is a competitive market.”
Some of Nomura’s largest Asian rivals have also started making acquisitions to bolster their expansion plans.
Citic Securities Co. on July 20 said it had bought a 19.9 percent stake in Hong Kong’s CLSA Asia-Pacific Markets and planned to purchase the remaining shares by mid-2013 for a total of $1.25 billion as it seeks to bolster overseas growth. The Beijing-based company, which is ranked second among managers of share sales in China, is almost 50 percent bigger than Nomura by market value.
In Southeast Asia, CIMB Group Holdings Bhd. agreed in April to buy most of Royal Bank of Scotland Group Plc’s investment banking and cash equities businesses in Asia for $142 million. The Kuala Lumpur-based firm was already one of the region’s top-ranked investment banks.
Nagai “is the right man to be running the domestic operations, but I was always concerned they were going to end up throwing money at an Asian broker,” said Nicholas Smith, a strategist at CLSA Asia-Pacific Markets Ltd. in Tokyo. “My fears look like they are going to be realized.”
Until taking the top job on Aug. 1, Nagai had worked at the brokerage’s domestic unit, which he took charge of in April. He joined Nomura in 1981 after graduating from Chuo University in Tokyo.
The firm plans to reduce costs by $450 million in Europe and the Middle East, $210 million in the Americas, $180 million in Asia and $160 million in Japan, it told investors in Tokyo on Sept. 6. It expects to complete the program by March 2014.
About 45 percent of the cuts worldwide will be from trimming jobs, with the rest coming from other operational expenses, the company said. The bulk of the job losses will be in investment banking and equities, it said.
Nomura will begin communicating the job cuts to staff on Sept. 17 in Europe, Asia and the Americas, the CEO said in the interview.
The company posted a 12.1 billion yen ($153 million) 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.
“Our Japanese clients expect us to make the most of our strength in Asia,” Nagai said. “Asia is growing, and so are our clients’ needs there.”