TOKYO -- Nomura Holdings has stumbled again overseas, leading to a decision to cut up to 1,000 positions. Whether the Japanese financial services firm can revive its dream to become a truly global investment bank will depend on what steps it takes to deal with a new normal.
Japan's largest brokerage said Tuesday it will overhaul its strategies in Europe and America. It will withdraw from European stock-related businesses, including underwriting, corporate research, and futures and other derivatives.
Overall, around 500 to 600 people will likely be let go in Europe, which would account for around 15% of the region's head count of slightly more than 3,400. The equity execution service business of subsidiary Instinet will survive the purge.
The European Union's regulatory clampdown is partly to blame for Nomura's decision. New rules currently in the works will in part address concerns about how institutional investors are paying for nebulous costs such as analyst research. This would lead to research departments at brokerages shouldering more expenses, said a Nomura executive.
After its business expanded through the purchase of some of Lehman Brothers' operations in 2008, Nomura thought it had slimmed down to an appropriate scale through earlier personnel cuts. However, the massive market slump since the start of the year has driven the Japanese company into further belt tightening. Top brass did not want to cut and run from overseas businesses, but a downscaling was necessary in order to survive.
Shrinking market share was also a factor. Nomura was the 25th-ranked underwriter in Europe in 2015, data from Dealogic shows. The brokerage then slipped even further, placing 57th for the first three months of this year. In terms of competitive advantage, the gulf between Nomura and JPMorgan, UBS and other Western rivals was nearly insurmountable.
In the U.S., the Japanese firm will scale back the business of analyzing and trading American stocks. Plans to beef up mergers and acquisitions consulting and other investment banking operations are now up in the air.
Another straw that broke the camel's back was Nomura's sputtering stock price. Shares that used to top 900 yen ($8.27) last July gave up more than half that value at one point, sinking below 450 yen in February.
That price is even lower than the float of additional shares in 2009 -- during the global financial implosion's wake -- for 568 yen apiece. Nomura's market capitalization this year had been drawing closer to that of Daiwa Securities Group, a domestic competitor highly focused on the Japanese market. Nomura's investors were running out of patience.
Nomura is currently adapting to the new normal by pouring resources into businesses promising better stability. The firm announced this past December it will acquire a stake in U.S. asset manager American Century Investments in a deal worth roughly $1 billion. The Tokyo-based brokerage is betting on a steady stream of earnings from the asset management business.
Shares of Nomura soared 20% on the latest news of the downsizing. The company will elaborate on the operational overhaul, and perhaps its path through the drastically shifting financial landscape, when it reports results for fiscal 2015 on April 27.