Jasjit Bhattal, the highest-ranking ex-Lehman executive at Nomura Holdings <8604.T>, resigned on Tuesday after the wholesale division he led suffered heavy losses and forced the Japanese investment bank to scale back its global expansion.

The departure of Bhattal is the latest blow to Nomura's ambitions to join the elite ranks of global investment banks following its acquisition of Lehman Brothers' European and Asian operations after the storied Wall Street firm collapsed in 2008.

India-born Bhattal, 55, was the former Asia Pacific CEO for Lehman and helped negotiate the sale to Japan's top broker. A seasoned international banker, he was a key legacy Lehman figure who played a major role in pushing Nomura into overseas markets.

Bhattal was chief executive of Nomura's wholesale division, which posted a 73 billion yen ($950 million) pre-tax loss in the July-September quarter, hit like other global banks by the downturn in financial markets and a slowdown in dealmaking.

Nomura launched a $1.2 billion cost-cutting drive in November mainly targeting the wholesale operations, stepping up restructuring amid the threat of a possible credit rating downgrade and speculation it could become a takeover target.

The wholesale business has been a drag on profitability and this led to the cost cuts to preserve their credit rating. It's not unexpected that at some point we were going to see change at the top of the division, said Makarim Salman, head of Japan Financials Research at Jefferies in Tokyo.

With the tough choices that Nomura is having to make at all levels, nothing is sacred.

Bhattal, the first non-Japanese to be named to Nomura's top decision-making committee, has decided to retire from investment banking, Nomura said. He will also relinquish the deputy president post of the Nomura group.

Takumi Shibata, Nomura's chief operating officer and the architect of the Lehman acquisition, will take over Bhattal's responsibilities for now, while leading the search for a permanent successor, the company said in a statement.

Nomura's deal for Lehman was signed in September 2008, just a week after the Wall Street brokerage filed for bankruptcy. At the time, Lehman had some 3,000 employees in Asia in 10 offices, with roughly 1,300 in Tokyo and 800 in Hong Kong.

To keep Lehman bankers from leaving, Nomura offered a wide range of guaranteed pay packages to ex-Lehman staffers, irking legacy Nomura bankers and jacking up costs at the bank.

BIG IN JAPAN, BUT ...

Bhattal, who took over as president of the wholesale division in April 2010, a move that was meant to reinforce the bank's commitment to international expansion and help retain talent following the exodus of many key ex-Lehman staff.

With Bhattal gone, there are now just four ex-Lehman executives left among Nomura's senior management: William Vereker, who is joint head of investment banking, Tarun Jotwani, head of global markets, John Phizackerley, CEO of the EMEA regional business, and Philip Lynch, CEO for Asia ex-Japan.

While Nomura succeeded in certain areas and continued as the dominant investment bank in Japan, its league table status outside Japan never really showed it gaining much ground on the major banks.

Nomura ranked first in Japanese equity capital markets in 2011, working on $6.8 billion worth of deals, but outside its home base it ranked just 32nd in Asia Pacific, according to Thomson Reuters data.

Investment banking remains dominated by U.S. and European banks, and it's been very difficult for any Asian bank to break into the industry, said Ronald Wan, managing director at China Merchant Securities in Hong Kong.

Japanese banks' influence has also weakened since the 1990s, and they've had a lot of trouble trying to gain enough traction here in the region.

The wholesale division's woes pushed Nomura to a group net loss of 46.1 billion yen in July-September, its first quarterly loss in more than two years.

Bhattal told Reuters in an interview at the time that conditions in the investment banking industry were as tough as during the 2008 financial crisis.

Nomura's stock has lost three-quarters of its value since the Lehman deal, dropping its price-to-book value below 0.5 and triggering Japanese media to speculate that it could become a takeover target of one of the big Japanese commercial banks.

The earnings downturn also prompted Moody's Investors Service to place Nomura Holding's Baa2 debt rating under review for possible downgrade. At the current level it is two notches above speculative grade.

($1 = 76.8500 Japanese yen)

(Reporting by Nathan Layne in TOKYO and Michael Flaherty and Kelvin Soh in HONG KONG; Editing by Michael Watson and Ian Geoghegan)