Nomura to Deepen Cost Cuts as CEO Seeks to Keep Ship Afloat

  • Nagai will assess cost-effectiveness of employees’ activities
  • Likens Japanese brokerage to a ship with ‘excess baggage’

Nomura to Deepen Cost Cuts in 'Waterline Project'

The code name chosen for Nomura Holdings Inc.’s latest cost-cutting drive indicates how strongly its chief executive sees the need for savings at Japan’s largest brokerage.

After slashing hundreds of overseas jobs since April, CEO Koji Nagai has unveiled his so-called “Waterline Project,” which will attempt to combat waste and improve the cost-effectiveness of the bank’s daily operations over the next three years.

“The waterline on a warship will rise a centimeter each year if the crew brings excess baggage,” Nagai said in an interview in Tokyo. “Before you know it, the ship will sink.”

Cost-cutting has been a feature of Nagai’s four years at the helm of Nomura, and his latest initiative comes after this year’s restructuring in Europe and the U.S. to trim $700 million of expenses. Global banks such as Goldman Sachs Group Inc. are also finding ways to curb spending in an industry that’s become less lucrative since the global financial crisis.

Nagai, 57, said Waterline will focus on reducing non-personnel expenses, although he didn’t rule out job cuts or reassignments. He gave the example of an employee who might spend time writing unnecessary reports, who could be shifted to different duties.

“To be honest, this company can do so much more to control costs,” the CEO said, indicating that the project is likely to be unpopular with Nomura’s 28,654 employees. “There will be resistance,” he said.

The review will start at the top by examining how executives are generating work for their subordinates, checking on how many of the e-mails and documents they generate are actually being read, Nagai said.

Nomura has earned less profit per employee than its closest domestic rival Daiwa Securities Group Inc. over the past four years, according to data compiled by Bloomberg.

Nomura has eliminated about 900 jobs, mainly in Europe and the Americas, since April in an effort to return its overseas operations to profit, people with knowledge of the matter have said. The bank plans to trim more positions abroad by around the fiscal year’s end in March, Nagai said, without giving a number.

At the same time, in the U.S., having pared some operations such as leveraged finance, Nagai said he’s keen to bolster promising businesses in areas such as investment banking. The brokerage may hire bankers or obtain a team from its rivals to boost its U.S. advisory and primary businesses “selectively,” he said.

Nomura’s status among advisers on mergers and acquisitions is slipping at home and abroad. In Japan, the company is ranked sixth, the lowest in 10 years, and it hasn’t held the top spot since 2011, data compiled by Bloomberg show. Globally, it has slipped to 35th this year from 24th in 2015.

Fortunes Turning

M&A business aside, Nomura’s fortunes appear to be turning. The company is on course to post its first profit abroad in seven years for the 12 months ending March, after pretax earnings outside of Japan reached 40 billion yen in the first half. Second-quarter net income jumped 31 percent, thanks to a rebound in fixed-income trading.

Like its Wall Street peers, Nomura has attracted investors since Donald Trump’s election victory, on speculation that the next U.S. president will ease bank regulations and boost fiscal spending. The stock has jumped 34 percent since Nov. 7, ending the year up 1.5 percent.

“It looks like Trump will create a business-friendly environment,” Nagai said. Among Japan’s financial firms, “people think Nomura may benefit the most.”

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