The latest confirmation of the pain global megabanks are suffering as a result of an abysmal trading environment, in no small part made even worse due to constant central bank tinkering, comes from Japan's largest brokerage, Nomura, which eight years after buying Lehman's European and Asian units has decided to fire 15% of its European staff and is abandoning most of its European equities business.
According to the FT, Nomura will also announce US job cuts and other cost-saving measures when it unveils a restructuring plan on April 27. The bank said in a statement that the plan followed a “strategic assessment” of its international operations. It will take the heaviest toll in Europe, the Middle East and Africa, where Nomura employs about 3,500 people. Altogether, Nomura will fire about 1,000 bankers between its European and US groups.
As reason for the cuts, Nomura cited "extreme volatility and a significant decline in liquidity, triggered by heightened uncertainty in the global economy." But we thought that with the S&P just 3% from all time highs... oh nevermind.
The FT adds that the "restructuring will open up old wounds for the bank’s staff who have already endured $2bn in cost cuts and a series of adjustments in recent years as the bank overexpanded and then gave up on trying to become a global investment bank. Some of the staff losing their jobs left immediately."
The people familiar with the situation said the job cuts would include more than 150 who work in the European equities business, plus significant numbers of support staff. In the US, there will be job cuts in both investment banking and markets, but the bank is not closing any business lines. Nomura will retain its full capabilities in the US bonds market, where the bank has invested in recent years as local banks have retreated.
For now those employed domestically are safe: "The bank’s Japanese home market will not see any job cuts, and neither will the broader Asian region, the people said." The market naturally was delighted by the news, and sent shares in Nomura up 8% higher in Tokyo.
The announcement comes just one day before the largest US banks begin reporting their own results in a quarter which many expected will be a disaster for the US banking sector. As FT adds, Nomura’s move comes as investment banks across the globe try to eke out profits against the backdrop of tumultous markets, low economic growth and escalating regulatory and compliance costs. Nomura has concluded that its European equities business is not large enough to compete effectively, one person familiar with the situation said.
What is particularly notable is that Nomura;s international operations are central to the company's future as its domestic business faces the same demographic challenges that have forced so many Japanese corporations to seek profits overseas. And yet, as the chart below shows, its international operations have not generated a profit since 2010. Annual losses have steadily shrunk from Y129.1bn in the 2010/11 financial year, but executives acknowledge there remained much to do. Like laying off thousands.
Finally, as Bloomberg adds, "the surprise is perhaps that Nomura waited so long to exit European equities, after the two other banks that bet on overseas expansion during the financial crisis -- when Wall Street rivals were suffering -- stepped back a lot farther. Standard Chartered completely abandoned equities early in 2015 after years of losses, acknowledging that it couldn't win as the U.S. firms came back to life and electronic traders cornered chunks of stock trading. The London-based emerging markets bank is still trying to deleverage after years of aggressive expansion, this week putting $4.4 billion of its soured loans on the block. Meanwhile Barclays, which last week sold its Asian wealth-management arm to a Singapore bank, shut its equities business in the region a few months ago as it refocused on Britain and the U.S."
Ironically, while growth is slowing at home, Nomura has almost one-third of the Japanese market, which means that it benefits as Abenomics floods the system with cash. And the investment bank has found over the years, overseas ambitions can be too expensive.
So for now at least the domestic operations are safe, and remain the company's cash cow; what happens if and when Abenomics fails is a different question.
As for those now former Nomura employees who took the "banker box" way out today, thank the central planners and the algos. And feel free to get in touch - we are always looking for disgruntled post-termination insiders...