UPDATE-Nomura to cut 500-600 staff in European equities cull

LONDON/TOKYO, April 12 (IFR/Reuters) - Nomura plans to axe 500-600 staff in Europe and will also cut global markets staff in the US, people familiar with the matter said on Tuesday, as Japan’s biggest brokerage tries to stem years of heavy overseas losses.

The European cuts will be in equity research, flow and structured equity derivatives and equity capital markets underwriting, all of which the firm is exiting. These businesses had remained under the Nomura umbrella in 2012 when cash equities execution was shifted to Instinet, its electronic agency broker. Nomura will, however, retain its convertibles business as well as an ECM advisory team.

The latest cuts will exclude Instinet. In fact, Nomura is likely to re-allocate some of the capital freed up from its European exits and its US rationalisation to shift some agency fixed-income execution via Instinet.

The cuts in Europe are estimated to account for about 15% of staff in Europe, although more precise numbers will be announced at the firm’s investor day on April 27.

Nomura had already cut hundreds of staff in its European and US equities business in 2012 when equities and fixed income were merged to reform the global markets division, in an attempt to cut costs and improve profitability.

Beyond equities, Nomura has also been shrinking its international spread products businesses as it de-emphasises product lines, such as corporate credit and non-agency US RMBS in global markets. Areas such as international debt capital markets will, however, be untouched by the changes.

Nomura’s overseas business is set to report a sixth straight annual pre-tax loss for the year ended March 2016. Between October-December 2015 alone, the overseas business lost ¥19.9bn (US$173m).

“Since the second half of last year, global markets have experienced extreme volatility and a significant decline in liquidity, triggered by heightened uncertainty in the global economy,” Nomura said in a statement confirming it will cut jobs in Europe and the US, but without giving details.

“Today’s announcement will position Nomura for sustainable profitability under the new market and regulatory environment, and reaffirms Nomura’s commitment to improving the performance of its international businesses,” Nomura said.

The combination of a hostile equity environment in which institutional clients have reduced trading velocity and regulatory developments (most notably MiFID II) has made it tough for brokers lacking scale to make a positive return on their equity businesses.

The decision to shutter European equity research and derivatives reflects the difficult underlying environment, the people said.

The retreat broadly reflects the problems banks outside the top five continue to have in attaining the scale necessary to be profitable, and Nomura’s failed attempt to crack into the top tier despite its acquisition of the European and Asian businesses of Lehman Brothers in 2008.

Nomura’s move comes as other big institutions also scale back in international cash equities due to sluggish trading volumes and rising costs against a backdrop of jitters about the global economy. British lender Barclays closed its cash equities business in Asia, while Asia-focused Standard Chartered closed its equities franchise.

Nomura has been unable to turn its European equity research or execution presence into a viable origination business, hence the decision to exit European ECM underwriting. The Japanese firm has a stranglehold on Japanese ECM with a market share of over 46% year-to-date, more than twice that of second-ranked Mizuho. But its Japanese equity underwriting accounts for more than 96% of its global deal flow so far this year, underlining the nature of the problem.

Nomura ranks 63rd in EMEA ECM issuance year-to-date and had garnered less than US$1m, compared with US$37m for all of 2015 and US$50m in 2014, according to Thomson Reuters data.

Jobs will also go in Nomura’s global markets division in the Americas. However, unlike in Europe the firm is not exiting any businesses or product lines.

Nomura has extensively expanded its US business in the post-financial crisis period, increasing headcount to around 2,500 from 700 in 2009. A senior Nomura executive referred to the US cuts as a “deep spring-clean” and said the changes were more a matter of “throttling back a little”.

Nomura’s operations in Asia will not be affected, the bank said.

The bank has lost US$3bn overseas in nearly six years.

“By restructuring some of its businesses, Nomura can stop the bleeding and - in the long run - move towards profitability in its international division,” said Masayuki Otani, chief market analyst at Securities Japan.

The market clearly liked the changes as Nomura shares climbed more than 7.4% in Tokyo trading to close at ¥481.50 after reports of its overseas cuts emerged.

Nomura had 3,433 employees in Europe at the end of last year, or just over 10% of its global workforce of 29,069. Over half of its total employees are based in Japan. (Reporting by Keith Mullin at IFR in London and Emi Emoto at Reuters in Tokyo)