Nomura CEO: Overseas units to see ’14 profit

Bloomberg

Koji Nagai, who took over as Nomura Holdings Inc.’s chief executive officer last month, said he plans to make overseas operations profitable by June 2014.

“We are not going to lower the flag as a global bank,” Nagai, 53, said Friday in Tokyo. “We want to be an Asia-based global investment bank.”

The forecast may be a relief to investors, who have seen shares of Japan’s largest brokerage drop to near a 37-year low as the 2008 purchase of Lehman Brothers Holdings Inc.’s European and Asian units swelled costs that led to nine straight quarters of losses abroad.

Nagai aims to arrest the slide by paring $1 billion in expenses and improving wholesale banking operations. He is considering acquiring an investment bank in Asia to increase revenue there.

“Nomura was trying to do too much in too many places and wasn’t profitable outside Japan,” said David Marshall, an analyst at Creditsights Singapore LLC. “Adopting a more focused strategy should help to improve operational efficiencies.”

Nomura shares have climbed 8.9 percent since Nagai unveiled the cost-saving plan Aug. 31, outpacing the Nikkei sock average’s 0.2 percent gain. The stock in November tumbled to ¥224, the lowest since at least 1974.

The firm said last week it will cut costs by $450 million in Europe and the Middle East, $210 million in the Americas and $340 million in Asia, including Japan.

About 45 percent of the cuts worldwide will be from paring staff, with the rest coming from other operational costs. The bulk of the job losses will be in investment banking and equities, it said.

Reducing costs by $1 billion will also probably curtail revenue, said Alastair Macdonald, an analyst at Macquarie Capital Securities Japan Ltd.

“The trick is to try and juggle it so that you gain more than you’re giving back,” he said. “These cost cuts are targeted at the right areas because they’re targeted at businesses which have been suffering the sharpest declines in revenue over the last couple of years or so.”

The latest initiative contrasts with a $1.2 billion expense-reduction program implemented last year that focused more on job cuts. About 63 percent of that money was saved by shrinking payrolls.

Nomura’s retrenchment isn’t across the board. The firm will expand its fixed-income business globally and reassign people from other divisions to join the unit, two sources said last week.

As part of efforts to make Asia a “mother market,” Nagai said the company may buy an investment bank or brokerage in the region to tap economic growth and the increasing number of affluent people. The firm is reviewing “a couple” of potential acquisition targets in Asia, he said.

Countries including China, India, Indonesia, Thailand and Vietnam are of interest, he said, without elaborating on how much Nomura would be willing to spend or which companies are being considered. The brokerage may buy assets or set up joint ventures with local firms to get access to facilities and operations, Nagai said.

“We want to operate fully licensed brokerage operations in Asia, including retail,” he said. “It’s not realistic to do this from scratch.”

Nagai, who became CEO after his predecessor, Kenichi Watanabe, resigned amid an insider-trading scandal, said it will take time to make a profit abroad as the company will first have to implement the cost savings program by March 2014. Eliminating jobs “will generate restructuring costs after that,” he said.

The firm will begin communicating the job cuts to staff on Sept. 17 in Europe, Asia and the Americas, the CEO said.

Nomura posted a ¥12.1 billion pretax loss from businesses abroad in the three months that ended in June, its ninth in a row. Europe lost ¥16.4 billion, Asia lost ¥1.9 billion and the Americas earned a pretax profit of ¥6.3 billion.

Nagai said he wants to achieve a target of ¥50 in earnings per share by March 2015, a year ahead of schedule. Nomura’s earnings per share totaled ¥3.2 in the year that ended in March.

“This initial plan is on the right track,” Macquarie’s Macdonald said of Nagai’s strategy. “Only time will tell on the execution.”

Since buying bankrupt Lehman’s assets, Nomura has increased its share of the global mergers advisory market and risen in the rankings for equity underwriting. The pie has shrunk as deals have slumped in the wake of the financial crisis and Europe’s sovereign debt turmoil.