LONDON (Reuters) - Japan's Nomura (8604.T) is pinning its turnaround hopes on bond and foreign exchange trading even as big rivals shrink some of those divisions, and a swoop on clients abandoned by others is helping it grow, the bank's fixed income boss said.
Fixed income, which includes other areas such as interest rate swap trading, has become a rare bright spot for Nomura as rocky markets force it to row back on a bold expansion four years ago, when it bought the European and Asian units of the now defunct Lehman Brothers.
The bank hopes a captive base of investors in Japan and Asia will help anchor its push, as Nomura profits from escaping some of the side-effects of the financial regulations squeezing others, said its global head of fixed income Steven Ashley.
"We're still looking to progress and grow and take market share where it's appropriate for us," Ashley told Reuters in an interview.
"Our competitors have been challenged and focused on delivering their businesses... That has definitely allowed us some more scope," he added.
Tougher rules on capital under Basel III regulations are pushing firms such as Morgan Stanley (MS.N)in the United States or Switzerland's UBS UBSN.VX to slim down in fixed income, as banks are forced to hold more capital against bonds on their books.
Nomura is not exempt, but Ashley said the bank did not have the same backlog of old transactions on its books, taking up capital resources to the same degree.
A shift away from derivatives being traded privately between parties, with transactions instead executed on exchanges and cleared more transparently, is also cracking open a market that used to be heavily dominated by a small group of banks, he added.
Ashley said Nomura was not aiming to take on rivals in every market but to tailor its fixed income unit to make the most of its big client base in Japan and Asia, offering them products sourced globally.
That might mean capitalizing on great demand for Turkish lira, for instance, but not focusing on other regions or currencies as much if they are less relevant.
"In some Eastern European currencies, we don't have any natural business. I wouldn't necessarily want to go head to head with a Polish bank, for example," Ashley said.
At the end of Nomura's first quarter ending in June, fixed income was the only area in wholesale banking to grow revenues, by 2 percent to 71.5 billion yen ($919 million), compared to a year earlier.
Nomura also reckons its fixed income market share rose from 2 percent in 2009 to 3.9 percent at the end of June, based on the reported revenue of its peer group stripped of accounting quirks.
But Nomura also faces challenges such as its credit rating, cut by Moody's to just one notch above the "junk" grade in March. Further downgrades could spook trading partners and make transacting more costly.
Ashley said that was a concern but that clients looked at a variety of metrics on which Nomura scored well, while Moody's has said that fresh cost cuts at the bank were "credit-positive."
Nomura last week said it would slash a further $1 billion of its cost base, with its overseas equities and investment divisions set to be among the hardest hit. Fixed income headcount would be "pretty stable", Ashley said.
Rivals are also shrinking and fine-tuning their strategy as rough markets bite, and as top investment banks begin to focus more on very big clients, Nomura has a chance to make inroads with others, Ashley said.
"Of course we want to transact with the largest global players, but equally there are chances to win more business from the tier two accounts that are no longer receiving the premium service they used to," he said.
Editing by Hugh Lawson