NOMURA Holdings is targeting 20 per cent revenue gains for its global markets unit over the next few years as the Japanese brokerage moves past the Archegos Capital Management scandal with new initiatives to spur growth, according to the business head.
Macro, credit and securitised products and equities will each contribute 25 to 30 per cent of the growth, with the remaining 15 per cent coming from wealth management, Rig Karkhanis, who was made head of global markets a year ago, said. The unit’s revenue rose 8 per cent to 707.1 billion yen (S$6.2 billion) last year.
The business has increased revenue for four straight quarters, helping the company’s overseas operations return to profit in the year ended March after three years of losses that included an almost US$3 billion hit from Archegos. Karkhanis’s division boosted headcount by 400 last year – the largest hiring ever – while keeping costs in check by cutting non-revenue generating roles and lowering trading costs, he said.
“The remediation plan is complete, and we have made a very significant change in terms of risk oversight, risk culture, governance,” he said, adding the focus is now on watching expenses. “Our cost-income ratio is too high. We need to create more profitable businesses without allowing costs to increase at the same pace as revenue.”
The Tokyo-based bank last month said profit jumped to 56.8 billion yen in the quarter ended Mar 31, thanks to soaring fixed-income trading and resurgent markets. Still, it took a 14 billion yen hit at its Instinet subsidiary tied to failed stock trades made by investment fund All Blue Capital.
In the past two years, the biggest Japanese brokerage has revamped trading teams for its rates and fixed-income business in Europe, the Middle East, Africa and Asia. It also made several senior hires in wealth management, reorganised its global securitisation and financing businesses under a single umbrella, and brought in new talent for equity trading.
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The overhaul has helped Nomura drive a rally in Japanese stocks, returning 88 per cent in the past 12 months including dividends, outpacing the 34 per cent gain in the Nikkei 225 Stock Average over the same period.
Karkhanis, who moved from Singapore last year to run the business out of London, has taken steps to further globalise his teams, expand the so-called share of wallet from clients and fill talent gaps. His priorities are to monetise the investments made so far, diversify the business mix and deliver stable earnings. Nomura’s global markets team focuses on areas including equity and fixed-income trading, and does not cover investment banking.
The company has created a global sales organisation that enables cross-regional, cross-product selling as it seeks to leverage its position in Japan. Nomura’s home country accounts for 25 per cent of the division’s global revenue, said Karkhanis, who oversees 3,500 people. It plans to offer US products including collateralized loans, private funds financing and quantitative investment strategies to Japanese investors, he said.
Asia, US hires
The next step is to take advantage of the US and Japanese businesses to expand the equities operation in Asia-ex Japan and Emea, which together contribute less than 15 per cent of its global equities operation. Over the past 12 months, the bank has hired more than 20 front-office staff to boost the equity franchise in Asia, while adding 10 people in Emea.
After ramping up its currencies and emerging markets trading in Europe last year, the bank plans to double the size of its team and revenue for the US business, up from the current 20-plus people in New York, he said.
The bank plans to extend its credit business model in Asia, where it has a 12 per cent market share, into other markets, starting with emerging Europe and the Middle East, where it’s made several senior hires.
“We also need to improve the balance between volatile market-related businesses like macro and parts of equity derivatives, and more accrual and long-term businesses” like credit spreads and financing, Karkhanis said. BLOOMBERG
