Nomura: Cultural shift

Koji Nagai, Nomura: aiming to simplify corporate structure

Nomura is indelibly linked with its acquisition of Lehman Brothers’ European and Asian businesses in 2008, a deal struck in the wake of the financial crisis.

The merger of two disparate businesses, with vastly different cultures, working practices and salary expectations, was always going to be difficult.

Even more so given it came in the wake of a crisis that turned banks into the whipping boys of regulators and politicians around the world.

Often, the deal serves as a warning sign for acquisitive chief executives today. Nomura does not appear to have been drastically changed by the addition of Lehman’s swashbuckling bankers, in part because many of them left once their guaranteed bonuses were paid.

But it is a mistake to reduce Nomura’s business to a single mark, given for one merger.

The bank had assets of ¥40.97 trillion ($385.7 billion) at the end of March. It generated revenue of ¥1.1 trillion and although it reported a loss of just ¥100 billion, that is partly because it took the hit for some much-needed reforms.

It is clear the bank has not given up its attempts to evolve into a leaner institution that can win business on the global stage. Its efforts to do so created a $1 billion cost-cutting drive that will lead to the shutting of some domestic branches and lay-offs in its European businesses.

Much of the savings will come from a more efficient structure, Koji Nagai, Nomura’s chief executive since 2012, tells Asiamoney.

“We’re going to abolish the matrix-style management structure, where we had regions and business lines as different axes,” he says. “We will now put focus on the business axis. We have also cut the number of corporate functions from 11 to five in an effort to improve corporate efficiency.

“This is about creating a cultural shift. The goal is not cutting the number of middle managers we have, but eliminating overlaps, so we have a clear, simple structure in place.”

Nagai is betting that this simple structure will allow Nomura to do what it does best: using the sizeable war-chest it has built up in the domestic market to offer quality services to its clients overseas.

Although the bank sees plenty of scope for generating business in the domestic market – in particular, by offering private-banking services to the country’s high net-worth investors – its biggest opportunities appear to be in international markets, including those markets that Japanese corporations are moving into.

Where exactly will Nomura expand? The bank puts less focus on the overall size of an economy than it does on per-capita income. But Nagai admits there is a balancing act.

Singapore has a per-head GDP of $64,581, according to the World Bank. At that level, the market is arguably over-banked at this point and Nagai has no plans to increase the bank’s presence there. There is plenty of potential business in the rest of southeast Asia, however.

How wealthy does a country have to be before it starts to become attractive to Nomura?

Nagai gives a wide range of $6,000 to $10,000 per-capita income. This does not mean countries below that do not offer some opportunities, but in these cases, Nomura is likely to offer wholesale business rather than retail. As a result, such countries can probably be managed by bankers based elsewhere.

China comfortably beats the benchmark and now appears to offer the biggest opportunities to Nomura, at least in Asia. Nagai wants the bank to grow its private banking business there – as well as win investment banking mandates – but unlike many of his global rivals he is going to aim for high net-worth investors, leaving his competitors to squabble over the much-coveted ultra-high net-worth class.

“China has an ageing population and is likely to face some of the same social challenges that Japan has already experienced,” he says. “This will include how elderly people can pass their financial assets down to the next generation. Our experience in this area will prove to be a major strength in the Chinese market.”

Nomura has not lost its lustre in the wholesale banking world. It has a strong equity derivatives business in the US, works as a primary dealer in both the US and Europe and has forged links with a host of Asian companies in the equity and debt capital markets.

These efforts are ensuring a slow and steady transformation to a global bank that has a good chance of standing the test of time. But what about speeding this transformation along with another headline-grabbing acquisition? Nagai is guarded, rather predictably.

“We’re running various simulations at this time, but we don’t have an acquisition on the cards at the moment,” he says.