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When Koji Nagai enters the meeting room of Nomura's headquarters with Marc Chagall's masterpiece at one end and the Tokyo Financial District panorama from the window, he looks like a besieged leader. Unfortunately, there is no sign of relief.
The results of the last three quarters of Japan's largest brokerage and investment bank were the worst of the decade, with a net loss of $ 907 million between April and December of last year.
The task of adapting European operations to the uncertainties of Brexit has been difficult, morale is low in the whole group, voluntary departures are becoming faster and unfavorable trends affecting the whole sector have the flaws in Nomura's decision making.
For the second time in seven years as general manager, Mr. Nagai has just announced a mbadive program to cut costs by a billion dollars. This time, the plan provides for a significant restructuring of the management and closure of 20% of national branches. The message: there are no more sacred cows left.
"We have no choice," Nagai told the Financial Times, describing the decision to reduce the once substantial presence of the bank in Europe and to end London's status as a global hub for wholesale .
Mr. Nagai's fundamental dilemma is clear. He needs a successful overseas operation to make up for the decline he can expect from the national crown jeweler, which has an aging clientele. Unfortunately, Nomura has a long history of misadventure abroad and there is no indication that the current leader has discovered the formula to break the jinx.
Despite its goal of strengthening its core business of raising capital and expanding in the United States and China, its approach is gaining more and more criticism. Disputes about the strategy are starting to heat up, said people directly involved. Executives based at Nomura's London office, which – according to Nagai at the FT – could face heavy job cuts, privately accuse Tokyo headquarters of treating the global market "like a hedge fund": cutting business sectors that run only briefly. to rebuild them later when the market will turn around.
Investors are also worried. Nomura shares and the rest of the Tokyo market rose during the Abenomics boom of 2013-2015 and after the international division returned to profitability for the first time since the global financial crisis. But the stock has since plummeted and remains stubbornly opposed to Mr. Nagai's attempts to convince the market that he is about to turn around. In society, some wonder whether the vaunted Japanese house that jumped so easily on Wall Street's Lehman Brothers in 2008 could even, itself, affix an informal sign "for sale".
The feeling of withdrawal, Nomura's senior managers say privately, is omnipresent. The company understands that its operations abroad are different from its national rivals. He loves prestige and will retain the key attributes of the global presence, said one of the partners. "But in practice, you are considering a retirement that will probably leave Nomura essentially a specialist in Japan, Asia and, if he is clever and lucid, of China."
At least the Chinese dream is alive and could become an important source of income: in March, Nomura received Beijing's authorization to manage a majority-owned unit of securities. But the biggest dream of securing a permanent spot among the elite range of US investment banks has actually been dropped.
The exhaustion of Mr. Nagai is at least the result of an action. A large part of the cost reduction and restructuring program, he explained, involves unraveling the inflexible management style and "predisposed to bottlenecks" – where workers may have more of a "crush". a boss – which was created 20 years ago in response to a previous crisis of overexposure to Russian bonds. It's this system, insiders said, which ultimately prevented Nomura from turning the Lehman purchase's coup d 'état into success.
Mr. Nagai exceptionally reveals both the need for these changes and the reason they did not occur earlier.
Reducing costs on the systems side, he said, had been a concern for a long time and he had already taken "drastic measures". The matrix management structure, he said, was a guarantee of previous restructurings. "Within the company, there was a disapproval of this decision. When I told the staff that the business had to be done in this way, in accordance with the big trends, they said that they were totally in agreement and that they should absolutely the make. But when we discussed the details at the level of their company, they gave me every reason not to do it. So this discussion is bogged down.
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For some badysts, Mr. Nagai's plans were filled with despair, lack of precision, and belated recognition that the fat should have been removed from Tokyo much earlier. Others view his strategy as a worthwhile and wise attempt to define the activities of Japan's most prestigious financial services brand at a time when it has become extremely difficult.
Brian Waterhouse, independent badyst, said, "Because Nomura is the number one, he has always felt that he should be number one in every market. I imagine that the problem of a Nomura CEO is now deciding whether he wants to be simply big in Japan, Asia or the world. "
At Nomura, Nagai's supporters believe the cost reduction program announced this month could naturally solve this dilemma. But the execution, whether by Mr. Nagai or by a successor, will be everything. Even if you suppose a perfect execution, according to badysts, nothing guarantees a recovery of income.
"The fact that Nomura proactively solves its profitability problem is certainly positive, but it is too early to determine the impact of the reform on profitability," said Shunsaku Sato, Credit Manager at Moody & # 39; s Japan, who felt that Mr. Nagai's plan was positive for credit. The overall rating of the group was revised downward in November 2018.
And although it will be crucial to find the right formula for business abroad, badysts said, the biggest battlefield will be at home, especially if Mr. Nagai can expect strong resistance. The main threat to Nomura's domestic operations is related to the advanced age of its core clientele – the wealthy retirees and small business owners with whom the bank has a relationship that has lasted for decades.
According to Hideyasu Ban, an badyst at CLSA, the problem is that Nomura has been less successful at attracting the sons and daughters of these clients – a cohort of potential customers in their twenties, thirties and early forties who are turning more naturally to online brokers such as SBI and Matsui.
Nomura has not yet felt the full impact of this change, but could do it more and more, said Ban, as Japan heads for a large-scale "estate event" in which the customers die but pbad on their fortune to people who have never been stuck in the banking sector. with the most prestigious brand of Japan.
The hangover of Lehman Brothers
When Kenenko Watanabe, then CEO of Nomura, acquired the European and Asian activities of Lehman Brothers in 2008, he praised the "transformational" deal as an opportunity to create a "world-clbad investment bank" capable of "delivering" Asia to the whole world.
A decade later, Mr. Watanabe has long since disappeared and this noble rhetoric no longer has the memory of his memory after a brutal decade in which Nomura has never lived up to this potential.
Shortly after the transaction, prestigious Lehman bankers, such as Christian Meissner, rose to the competition after spiking against the more conservative Japanese culture.
Nomura has always struggled to make money outside of its home market, which ultimately led to a $ 1 billion reduction in costs and the closing of most of its European securities business. in 2016. More than a thousand jobs in Europe had disappeared in 2018 and billions of capital were removed and repatriated.
It was supposed to be the end of the bleeding, but Nomura's operations outside Japan were continually losing money – $ 151 million in the first half of 2018 alone – and hundreds of additional employees been dismissed.
"When we acquired Lehman in 2008, we had three or four years of major projects and we really prepared for a fall – we were talking very loudly and then we were spectacularly disappointed," said a senior official. leader. "Society is now more self-conscious, we are no longer trying to compete in all markets."
Stephen Morris
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