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Nomura Boldly Advances Post-Archos Scandal with Global Markets Growth Strategy

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Lauren Miller

May 6, 2024 - 23:19 pm

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Nomura Holdings Targets Growth in Global Markets Division Post-Archos Scandal

In a bid to move past the Archegos Capital Management debacle and spearhead new growth strategies, Nomura Holdings Inc. has set its sights on a sizeable revenue increase for its global markets division. It is during these transformative times for the Tokyo-based brokerage that the head of the global markets unit, Rig Karkhanis, has disclosed ambitious plans in a recent interview conducted in London.

With a clear vision for the future, the company intends to achieve a 20% surge in revenues over the forthcoming years across various sectors within the division. Karkhanis, who ascended to the position of division head a year ago, revealed a strategic plan that delineates the expected contributions from different segments. Macro trading, credit endeavors, and securitized products alongside equities are each anticipated to churn out between 25% to 30% of the targeted growth, while wealth management is projected to pitch in with the remaining 15%.

The unit's performance is already a testament to its upward trajectory, with an 8% revenue increase to 707.1 billion yen (approximately $4.6 billion) in the previous year. Such consistent financial progress has contributed significantly to the profitability of the company's international operations, which had previously faced three years of losses. This dark period included the notorious Archegos incident, which resulted in an almost $3 billion financial impact. Karkhanis's stewardship has thus far proven successful, with the global markets division witnessing revenue growth for four consecutive quarters.

Regarding personnel strategies, Karkhanis notes the bolstering of the division's workforce, boasting an addition of 400 employees last year, signifying the most substantial hiring phase in the division's history. Important to this strategy's success has been the diligent approach to cost management, including the reduction of non-revenue-generating roles and more efficient trading operations.

Karkhanis's confidence in the restructured risk framework of Nomura was evident when he said, "The remediation plan is complete, and we've made a very significant change in terms of risk oversight, risk culture, governance." He stressed the importance of cost vigilance by stating that the cost-income ratio remained a concern. The goal is to generate more profitable businesses without proportionately boosting expenses.

As Nomura continues to mend and strengthen its structure, the previous quarter demonstrated promising financial results. The bank reported a soaring 56.8 billion yen profit for the quarter ending March 31, propelled by a strong performance in fixed-income trading and favorable market conditions. Despite its successes, Nomura wasn't immune to setbacks, taking a 14 billion yen loss from its subsidiary Instinet due to failed stock transactions made by investment fund All Blue Capital.

Bloomberg goes in-depth on the Archegos debacle: ‘Money Failed!’: Bill Hwang Fights Jail After Losing $36 Billion

Nomura took this period as an opportunity to strategically overhaul several trading teams across the globe, specifically within the realms of rates and fixed-income sectors. This restructuring encompassed Europe, the Middle East, Africa, and Asia. Moreover, the brokerage embraced new talent hiring sprees in wealth management, converged its global securitization and financing operations under one unified structure, and attracted new talent for equity trading functions.

The revamp efforts have begun to bear fruit as Nomura has significantly contributed to rallying Japanese stock prices. In the past 12 months, the company observed an impressive 88% return on its shares, including dividend payouts. This marked performance overwhelmingly surpassed the 34% gain of the Nikkei 225 Stock Average during the same timeframe.

Karkhanis, who transitioned from overseeing the operation out of Singapore to take the helm in London last year, has undertaken critical actions to further internationalize his teams. His aims are to expand the share of wallet from clients, fill talent gaps, and capitalize on the investments made to date. He is focusing on diversifying the business mix and providing stable earnings streams. Karkhanis went on to detail that Nomura’s global markets team operates within equity and fixed-income trading realms while distinctly not covering investment banking areas.

A major strategic initiative by the company has been the creation of a global sales organization, paving the way for cross-product and cross-regional sales approaches. Nomura leverages its strong foundation in Japan, with the country contributing a significant 25% to the global revenue of this division. Karkhanis oversees a massive team of 3,500 individuals and reveals plans to present US-focused products like collateralized loans, private funds financing, and quantitative investment strategies to the Japanese investment base.

The growing ambition of Nomura doesn't stop there. The company's road map includes expansive plans for its equities operation outside of Japan and the EMEA region, which currently account for less than 15% of its worldwide equity operations. The past year has seen over 20 front-office hires specifically aimed at boosting the equity franchise in Asia. This expansion also includes an additional 10 individuals in the EMEA region.

The strategic development continues as Nomura seeks to double the revenue and team size of its currencies and emerging markets trading operations, particularly in the US, which currently comprises over 20 experts in New York. Additionally, the bank aspires to replicate its successful credit business model from Asia, where it holds a 12% market share, into new markets starting with emerging parts of Europe and the Middle East. To accomplish this, several senior-level recruits have been initiated.

Amid these conscious growth moves, Karkhanis emphasized the need to strike a balance within the business. This entails harmonizing between volatile market-related segments such as macro trades and certain equity derivatives and more stable, long-term sectors, including credit spreads and financing activities.

The exhaustive article on Nomura's earnings and strategies can be further explored: Nomura Profit Jumps on Fixed-Income Trading, Retail Boom

As Nomura sharpens its focus and advances into the future, the assistance from industry experts like Takashi Nakamichi, among others, proves invaluable.

©2024 Bloomberg L.P.

Nomura’s initiative and strategic shifts aim to reshape the global markets unit into a more efficient, profitable, and risk-aware division. Their actions following the Archegos scandal have demonstrated not only the company's resilience but also its commitment to adapt and improve in a rapidly changing financial environment. With their sights set on revenue gains and a smart restructuring of teams and talent, Nomura positions itself to harness the anticipated growth and ensure long-term stability and success in the global marketplace.