September 6, 2012 / 8:08 AM / in 5 years

Europe, equities bear brunt of Nomura's $1 billion cost cuts

A logo of Nomura Holdings, Japan's largest brokerage, is pictured in Tokyo April 22, 2008. REUTERS/Yuriko Nakao

TOKYO (Reuters) - Nomura Holdings Inc, Japan’s biggest brokerage, said it will make cuts in its equities and investment banking businesses as it looks to chop $1 billion in costs, mainly from its ailing overseas operations, cooling its global ambitions.

Unveiling details of a $1 billion restructuring it outlined last week, Nomura said the combined European, Middle East and Africa region would account for 45 percent of the total cost savings target, with the Americas accounting for 21 percent, Asia ex-Japan 18 percent and Japan 16 percent.

The plan is Nomura’s second major restructuring in less than a year and is the first move by new Chief Executive Koji Nagai to retrench from an expansion built on the 2008 acquisition of the Asian and European operations of Lehman Brothers.

The previous pruning, launched last year, also sought to cut $1 billion in costs from the wholesale division, which handles equities, fixed-income and investment banking, and eliminated about 1,000 jobs across the group.

Nomura, announcing the cuts at a briefing in Tokyo on Thursday, said it would streamline its investment banking operations to focus on advising clients on deals in certain sectors such as retail and financial institutions, and migrate most of its equities execution outside of Japan to its Instinet electronic brokerage unit.

It did not say how many jobs will be cut in the latest plan.

“It’s critical that we boost profitability without relying on a cyclical recovery in the markets,” said Chief Operating Officer Atsushi Yoshikawa. “We are not dropping our global ambitions.”

Combining Instinet, a so-called agency broker, and Nomura International would put an end to years of having them compete against each other for business.

Along with rivals such as Deutsche Bank, Morgan Stanley and UBS, these units make money by finding the best share deals available on behalf of pension and hedge fund clients, but have struggled for profits as trading has dried up, particularly with the uncertainty linked to the eurozone debt crisis.

Nomura bought Instinet for $1.2 billion from a private equity firm in 2006, and there had been speculation it could be sold. Instinet employs 180 people in Europe, while some 4,000 staff are employed by Nomura International in the region.

REVIEW, REBUILD

Nagai replaced Kenichi Watanabe last month as part of a management reshuffle triggered by an insider trading scandal. Nagai had promised to launch a new strategy after a one-month review and to rebuild the bank from the “ground up”.

Nomura is far from alone in paring costs. Across the industry, banks are cutting staff and scaling down businesses to cope with a shaky global economy, dwindling stock market volumes and tighter regulations that have crimped profitability.

The Japanese firm faces a tough balancing act in trying to trim costs without losing the top talent needed to generate revenue. This week, prominent dealmaker William Vereker stepped down as joint head of investment banking and became vice chairman, a move seen as a precursor to his eventual departure from the bank.

Vereker was one of the last senior legacy Lehman executives left at Nomura, a reflection of the extent of the shake-up to its overseas staffing in recent years. A number of Nomura’s senior executives, such as fixed income head Steve Ashley who joined from Royal Bank of Scotland Group in 2010, have been brought in from other firms.

Nomura says it will complete the latest round of restructuring by the business year to March 2014. It is aiming for pre-tax profits of 250 billion yen ($3.2 billion) from its wholesale, retail and asset management divisions by the year to March 2016. Those divisions generated a combined profit of 46 billion yen in the past business year.

Ahead of the briefing, Nomura shares closed up 2.3 percent at 266 yen, while the benchmark Nikkei stock average ended barely changed.

Reporting by Nathan Layne; Editing by Michael Watson and Ian Geoghegan

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