Nomura Holdings Inc’s chief executive vowed to keep Japan’s biggest brokerage independent and quickly implement his latest turnaround plan as a slumping share price puts the question of a potential merger in focus.
“We cherish the strengths and utility that we have through our independence as a Japanese financial group,” CEO Koji Nagai said in an interview in Tokyo yesterday. “It’s not going to happen that we’ll become part of a financial company elsewhere. We’re not thinking about such a thing.”
Koji Nagai Nagai, 60, this month unveiled plans to cut $1bn of expenses from Nomura’s struggling global trading and investment banking business, a move that has already resulted in dozens of job cuts worldwide. The firm’s valuation is close to the biggest discount to global peers in two decades, as investors digest whether the restructuring plan will end years of overseas losses since it bought Lehman Brothers Holdings Inc operations in 2008.
Nomura is among firms worldwide that have been battling to compete with Wall Street banks since the global financial crisis, prompting some to consider mergers as a solution. Deutsche Bank AG and Commerzbank AG are now in talks on a potential deal as the German government seeks a “national champion” for its exporters.
Nagai doused any speculation for a similar move in Japan, saying he’s not interested in teaming up the 94-year-old brokerage with Mitsubishi UFJ Financial Group Inc, the nation’s biggest bank. MUFG already has an investment-banking alliance with Morgan Stanley, and is the US firm’s largest shareholder.
Nagai signalled that he may step down before the completion of the three-year overhaul as long as it goes smoothly. Two previous efforts since he became CEO in August 2012 failed to sustain an earnings recovery overseas, where Nomura has only posted an annual profit once during his reign.
“I will take responsibility until things get on track,” said Nagai, who is Nomura’s longest-serving CEO in more than 30 years. He said it would be “natural” for him to leave in less than three years. Overseas operations will probably start generating annual profit if Nomura achieves 60% of its $1bn in wholesale business cost cuts in the year ending March as planned, he said.
Nomura is on course to post its first annual net loss in a decade when it reports earnings next Thursday. It lost ¥101.3bn ($905mn) in the nine months ended December, thanks mainly to write-downs including of its acquisition of Lehman Brothers operations in Europe and Asia.
Shares of Nomura have gained 4% since the revamp was announced on April 4, and are down 31% over the past 12 months. It’s trading at 0.54 times the book value of its assets, close to the cheapest relative to global financial companies in the 20 years since Bloomberg began tracking the data.
Analysts have questioned how Nomura can grow revenue after cutting front-line trading staff. Nagai is pivoting toward what he calls “client-focused” businesses, such as advisory, which tend to be less volatile. However, he suggested that it’s too early to get into details on where revenue growth will come from as the restructuring programme has just started.
“What we are saying is, let’s remove our old clothes and put on something that matches the new era,” he said. “What we do in our new clothes is something that we should tackle later.”
Nagai isn’t entirely in retrenchment mode. He said he may look to acquire wealth management assets in Asia excluding China to make the most of the region’s growing ranks of rich people. “If there’s a good opportunity, we will naturally consider it,” he said, without elaborating on potential targets.
At home, Nagai said he wants to swiftly launch the securities venture being formed with messaging platform provider Line Corp once the regulator approves it. The company filed a registration application to the Financial Services Agency in late March, he said.
Nomura is turning to technology to modernise its domestic retail business, which has relied on expensive face-to-face services at branches and is confronted by intensifying competition with online brokers. The firm is cutting about a fifth of its outlets under the latest overhaul plan.
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