Soon after Nomura Holdings Inc. got burned on the collapse of Archegos Capital Management, its executives vowed to revamp its prime brokerage. Insiders and hedge funds are starting to grasp what that means for those operations in the U.S. and Europe: There won’t be much left.

Within the Tokyo-based firm, executives privately predict its plan to rein in risks will shrink the prime brokerage unit in Asia — and curtail it much more dramatically in Europe and the U.S., where Nomura was relatively small but was attempting to expand.

Word of the retreat is already spreading on Wall Street, as some of Nomura’s prime brokerage employees in New York start to explore other job opportunities or advise key clients to establish backup relationships with other banks, people with knowledge of those talks said. Nomura has also approached some rival firms about the possibility of having them take over lending commitments to prime-brokerage clients, another person said.

Lawton King, a company spokesman, declined to comment.

Ambitions in U.S.

Japan’s biggest brokerage lost almost $3 billion — second only to the hit incurred by Credit Suisse Group AG — when Bill Hwang’s family office, Archegos, wasn’t able to put up more cash for highly leveraged stock bets gone awry. But soon after the debacle began unfolding, Nomura Chief Executive Officer Kentaro Okuda publicly signaled he would stick to a plan to build up a presence in the U.S.

Nomura has long sought to achieve more there, looking to the world’s biggest pool of banking fees to burnish returns amid stagnation in its home market. To help, Okuda named Wall Street veteran Christopher Willcox co-head of its Americas unit and pledged to add non-Japanese outside directors. Among expansion efforts, executives hoped to earn more from the prime brokerage, which was dwarfed in the U.S. and Europe by major rivals.

But in the weeks after Archegos collapsed, Nomura outlined what it called “remedial measures” to rein in risks when catering to hedge funds. That included curtailing leverage to clients lacking a broader relationship with the firm. It’s since been hard for outsiders to gauge what impact that will have on the bank’s presence in regional markets and earnings.

One industry observer estimated Nomura makes about $300 million to $400 million annually from prime finance, with roughly $200 million to $250 million coming from Asia.

Financing was supposed to be a key piece of the U.S. prime brokerage unit’s expansion, with the firm pitching growth-oriented clients on its ability to provide leverage, according to a person briefed on the strategy.

Approaching rivals

In the months since the Archegos debacle, Nomura has approached some rivals, looking to unload its financing deals with other hedge funds, according to a person with knowledge of the proposals. In talks with at least one bank, representatives from Nomura suggested transferring the debts onto the other lender’s balance sheet, leaving Nomura to execute trades for those clients through its Instinet platform. Nomura would get the commissions from the trades and a share of the returns from the financing. The other bank passed.

Nomura’s prime brokerage revenue from the U.S. and Europe is dwarfed by what its other markets businesses earn there, so as the unit pares back in those regions the impact on earnings is likely to be muted, according to an executive.

Nomura plans to keep its overseas derivatives business, which is particularly significant in the U.S., that person said. It would also keep Delta One trading in the U.S., which helps clients synthesize the returns they would get on assets without buying them directly.

Okuda assured investors last month that management takes the Archegos incident “very seriously.” The company hired a law firm to review what happened. It also suspended some senior executives at its investment bank and replaced its global head of credit risk.

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