Equity has left the building: Nomura EMEA bankers left reeling by big cuts
Large swaths of Nomura’s European equity business were closed down on Tuesday morning, with hundreds of bankers across equity underwriting, equity research, sales and equity derivatives informed they were to pack up and leave. Bankers at the firm tell Euromoney it was no surprise cuts were on the way, but selective pruning had been considered a more likely course than the scale of withdrawal that has been implemented.
The remaining business will be of a very different scale. The Instinet brokerage business that Nomura bought in 2007, and which houses the bulk of the firm's equity trading, is understood to be untouched in all regions by the cuts. There will be some remaining European sales and sales trading presence for Japanese and Asian stocks.
Also remaining is a convertible bond origination and structuring capability, as well as an equity capital markets presence to service Japanese corporate activity in Europe.
“We had known something was in the offing since an offsite in Tokyo finished on Good Friday [March 25],” says one departing senior banker, who was preparing to gather with colleagues in the City to mull over the situation.
“We knew big decisions were being taken and that the firm was under huge pressure to stop sending excess capital over here to support the business. And now that we know we are in a structural rather than a cyclical decline, it was clear something had to be done.
“But even so, I had reckoned there was only about a 25% chance of a complete shutdown.”
Sources within Nomura are at pains to highlight that what has happened stops short of a complete shutdown, but it is certainly big enough for those on the way out to be feeling dazed. The decision was communicated to staff at about 8.30am by senior equities and investment banking management, with one banker estimating that the cuts numbered in the hundreds. About 300 staff are to remain across the entire equity-related business in EMEA, according to one source at the bank, although there has been no official comment on the number of departures in specific business lines.
As of December 31, 2015, Nomura as a whole employed 3,400 people in Europe.
Nomura on Tuesday released a statement saying it was implementing a strategic change to its wholesale businesses in EMEA and the Americas, in response to the extreme volatility and significant decline in liquidity seen in global markets since the second half of 2015.
However, it said it would not announce details of its new strategy until its fourth-quarter and full-year results on April 27. It said it would close certain businesses in EMEA and would rationalize others in the Americas, while there would be no changes to the Asia-Pacific platform.
Tetsu Ozaki, Nomura
“We are taking decisive action to refine the services we offer to our clients, while continuing to leverage our dominance and unique strengths in Asia, providing tailored solutions to our clients globally and continuing our 90-year legacy of putting clients at the heart of everything we do,” says Tetsu Ozaki, Nomura’s group chief operating officer.
“This exercise will deliver significant efficiencies and cost savings for Nomura, refocusing the firm’s activities and reallocating resources towards its areas of expertise and most profitable business lines.”
Other staff might be picked out during the 45-day consultation period to stay on in other capacities, said one banker.
One option mentioned could be to create a small equity advisory team, which would benefit from being capital-light and would be in keeping with the corporate finance focus that appeared last year to serve the firm well in Europe.
However, it would doubtless still have a tough job competing with the likes of Lazard and Rothschild on the equity front, particularly no longer having the primary equity underwriting capability to bolt onto it.
Nomura has struggled to make its European primary equity franchise compete, largely because it fell between the two stools of bulge bracket and niche without effectively being either. Former Nomura bankers recall it had an excellent year in 2009, when it had many hundreds more bankers than today, but its presence has faded since.
“The European equity market will not blink at the fact that Nomura has gone,” says one banker. “We are a pin-prick in the excess capacity that exists in this industry.
“We were positioned as a bulge bracket equity house, but we were finding it hard to compete and nor were we niche enough to compete with the likes of smaller shops. And the industry is now as tough as I’ve known it.”
Some point to the entry of new management in 2012 as the turning point in terms of pressure, with profitability a key concern from that point. It was at that time that Koji Nagai took over from Kenichi Watanabe as group CEO as the bank sought to build what it said was a new global business model that would allow it to remain flexible and adapt quickly to a changing environment.
But even with expensive staff cut over the years, the pressure in a region like Europe only increased as revenues stagnated and market share fell.
Nomura does not feature in Dealogic’s top 25 ECM bookrunner rankings so far this year in EMEA. It ended last year in 25th place, with a 0.7% market share.
Globally, Nomura’s equities revenues totalled ¥76.9 billion in the most recent quarter, which ended December 31, just below the contribution from fixed income.
At group level, the bank posted pre-tax losses for all its regional businesses outside Japan in the most recent quarter. Overall, Nomura’s wholesale division has posted falling revenues for the last four quarters, falling from ¥231 billion in the quarter ending March 31, 2015, to ¥186 billion in the last calendar quarter of the year. Nomura’s financial year runs until April. Regional numbers were not broken out, but the bank said that cash equities had fallen in EMEA, while they were flat in the Americas and rising in Asia ex-Japan.
The US equity business appears to be safe for the moment, which will come as good news to staff such as Mark Connelly, who joined the firm as head of Americas ECM in late November 2015, having previously been global co-head of ECM at Jefferies.
However, some bankers leaving the European business struggled to understand how the firm would make a better fist of things in the US. “The question is why keep the US? I would have understood just keeping Asia,” says one.
There is no talk of similar cuts in fixed income, where a round of rationalization took place in the middle of 2015. At that time, layers of middle management were removed from European fixed income, with staff such as Benedict Nielsen, head of EMEA DCM origination and syndicate, Simon Deeny, co-head of global finance EMEA, and James Wilkinson, head of flow rates and frequent borrower group trading, heading out of the door.
The fixed-income franchise was already also being seen as safer than equities after a recent change at the top of Nomura’s wholesale bank, with Steven Ashley (who was head of global markets) appointed as co-head.
Joining him was Kentaro Okuda, global head of investment banking. They replaced Ozaki, who became group chief operating officer. The changes became effective on April 1.