Nomura CEO says Asia payday a few years down the road
TOKYO (Reuters) - It will likely take Nomura Holdings (8604.T) another 2-3 years before it can generate significant profits in the Asia-Pacific region it has positioned as key to its growth outside Japan, the brokerage's new CEO said in an interview on Tuesday.
Koji Nagai told Reuters he expected investment banking fees to expand in Asia in step with the region's leading economies, which are expected to account for half of global output by 2050, up from about 30 percent now.
"The fee pool is by far bigger in America right now, but there is no question that Asia will grow," said Nagai, 53, who took over as chief executive last month after his predecessor quit over an insider trading scandal.
Nagai acknowledged it would be tough to translate that growth into profits quickly, with Nomura embarking on its second $1 billion cost-cutting drive in as many years and given the intense competition from a host of other banks keen on Asia.
Nomura is counting on a recovery in Asia to help its ailing wholesale division, which oversees investment banking, equities and fixed income, achieve 50 billion yen ($639 million) in pre-tax profit overseas in the year to March 2016. In the same year, Nomura is aiming for a 75 billion yen profit for wholesale in Japan.
"The next few years will be tough," Nagai said of the Asian operations excluding Japan, which lost 1.9 billion yen ($24.3 million) in April-June. "To be honest, I don't see Asia making big profits soon, like in the next two or three years."
Nomura last week announced the details of its latest cost-cutting plan, further pulling back from an overseas expansion built on its 2008 acquisition of the Asian and European businesses of failed Wall Street bank Lehman Brothers. The bulk of the cuts are aimed at equities and investment banking.
Geographically, Europe will account for 45 percent of the cost savings, while the Americas and Asia outside Japan will be targeted for about one fifth each.
While Nomura dominates the league tables in Japan, it has struggled elsewhere in Asia. In January-June, it failed to rank among the top-25 banks in advising on mergers and acquisitions involving Asian firms outside Japan, Thomson Reuters data shows.
Nagai said Nomura would look to capitalize on its strong customer base in Japan, which includes retail investors across a nationwide network of branches and blue-chip firms in need of help to raise funds or find acquisition targets overseas.
He also pointed to Japan's deep pool of untapped capital as a potential strength. Households hold the bulk of their $19 trillion in assets in bank accounts earning close to zero in interest, with only one-tenth in bonds and shares.
That foundation in its home base will work in Nomura's favor as the industry grapples with weak markets and tougher regulations which have made it difficult to amplify trading profits by taking on massive amounts of debt, Nagai said.
"The traditional investment banking business model of using leverage to generate returns will become more difficult," he said. "Japan is in a unique position, with untapped potential. I believe our business model is in fact plenty competitive." ($1 = 78.2900 Japanese yen)
(Reporting by Nathan Layne and Emi Emoto; Editing by Ian Geoghegan)
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