Chief operating officer Tetsu Ozaki outlined a plan to “further improve profitability of international business” – something of a euphemism for a business line that has lost money for years.
EMEA will be hit hardest by the Japanese bank’s belt tightening — the bank plans to “focus on competitive strengths along with stringent cost control”.
In Americas, it will “strengthen the franchise and maintain a full service platform... [and] pursue selective growth opportunities in the largest fee pool”.
In Asia outside Japan, it’s all about growth. It wants the wholesale arm and retail bank to work together more closely, an approach which mirrors the wealth management-led strategy Credit Suisse is pursuing in the region.
For the rest of 2016 (the calendar year, not Nomura’s March-March reporting year), it sees the fee pool across all wholesale products potentially dropping more than GDP for the first time in 20 years — down around 8%, or 17% in the bear case.
Breaking down its cuts by product, it offered a little more detail on its plans announced earlier in the month. In M&A, it will maintain or grow its existing services, but align more with primary and solutions business.
As in the earlier announcement, its cash equities business will mainly focus on Instinet, its agency brokerage platform, while EMEA equity derivatives, delta one, equity financing, and equity futures and options will close. It will close EMEA equity sales, but keep EMEA-based distribution for Asian equities. It plans to keep global convertibles, prime financing for Asian clients, and quantitative investment solutions.
It will keep an EMEA equity capital markets advisory team.
Nomura has already made some cuts in leveraged financing and structured finance, but it said it would “streamline acquisition and leveraged finance cost base in the US” as well, despite its relative success in the market. It plans to restructure non-agency securitized products and corporate credit “freeing up resource usage” in the US, though it wasn’t clear whether this referred to staff or balance sheet. It will “streamline” its credit and securitized products research in EMEA.
In solutions, meaning, essentially, structured and private side derivatives, it said there will be a “selective investment plan focused on areas of rising client opportunities”, including a “solutions hub” in EMEA.
It highlighted insurance solutions, emerging markets and Latin America, and structured client financing as areas of growth in solutions, which would receive a greater capital allocation, while liquidity and market-making will see its capital allocation cut. Primary markets will get more capital, but “strategically, to facilitate client transactions”, of course.
The cuts should reduce cost by around 20% in the wholesale division.
Nomura also reported its full year numbers on Tuesday, with a 13% drop in revenues to ¥1,395.7bn (€11.35bn), a 52% drop in pre-tax profit to ¥165.2bn, and a return on equity of 4.9%.
In the wholesale division, revenues were down from ¥789.9bn to ¥720.3bn, dragged down by fixed income.
Fixed income revenues were down from ¥396.9bn to ¥275.2bn. Equities, despite the planned cuts, was up from ¥286.5bn to ¥325.1bn, while investment banking was also slightly up, from ¥104.7bn to ¥108.4bn.
Profit from the wholesale division dropped from ¥82.2bn to ¥15.4bn.