Nomura seeks profits from overseas by 2014

New chief says the Japanese brokerage giant has plans to cut US$1 billion from global expenses

PUBLISHED : Tuesday, 11 September, 2012, 12:00am
UPDATED : Tuesday, 11 September, 2012, 9:26am

Koji Nagai, who took over as chief executive last month at Nomura Holdings, Japan's largest brokerage, plans to make the firm's overseas operations profitable by June 2014.

"We are not going to lower the flag as a global bank," Nagai, 53, said. "We want be an Asia-based global investment bank."

The forecast may be a relief to investors, who have seen the stock drop to near a 37-year low as the 2008 purchase of Lehman Brothers' European and Asian units swelled costs that led to nine successive quarters of losses abroad.

Nagai aims to arrest the slide by cutting US$1 billion in expenses and improving wholesale banking operations. He is considering buying an investment bank in Asia to increase revenue.

"Nomura was trying to do too much in too many places and wasn't profitable outside Japan," said David Marshall, an analyst at Creditsights Singapore. "Adopting a more focused strategy should help to improve operational efficiencies."

The company said last week it planned to reduce costs by US$450 million in Europe and the Middle East, US$210 million in the Americas and US$340 million in Asia including Japan.

About 45 per cent of the cuts worldwide will be from trimming staff, with the rest coming from other operational expenses.

The bulk of the job losses would be in investment banking and equities, it said.

Reducing costs by US$1 billion would also probably curtail revenue, said Alastair Macdonald, an analyst at Macquarie Capital Securities Japan.

"The trick is to try and juggle it so that you gain more than you're giving back," he said.

"These cost cuts are targeted at the right areas because they are targeted at businesses which have been suffering the sharpest declines in revenues over the past couple of years or so."

The latest initiative contrasts with a US$1.2 billion expense-reduction programme implemented last year that focused more on job cuts. About 63 per cent of that money was saved by shrinking payrolls, the bank said.

Nomura's retrenchment is not across the board. The firm will expand its fixed-income business globally and reassign people from other divisions to join the unit, industry sources said.

As part of efforts to make Asia a "mother market", Nagai said the company may buy an investment bank or brokerage in the region to tap its economic growth and increasing number of affluent people. The firm was reviewing potential targets, he said.