Japan's Nomura Holdings <8604.T> posted its first quarterly loss in 2-1/2 years on Tuesday due to a sharp drop in investment banking revenues and tripled its cost-cutting target to $1.2 billion in a setback to its overseas expansion plans.
The debt crisis in Europe has ratcheted up pressure on Japan's top brokerage to tap the brakes on a global expansion that started with its purchase of the Asian and European businesses of failed Wall Street bank Lehman Brothers in 2008.
Nomura lifted a cost-cutting target to $1.2 billion from the $400 million announced in July in a move that will likely lead to hundreds of more job cuts on top of the roughly 400 it set out to reduce in September.
While Nomura did not give details of planned job cuts, its chief financial officer, Junko Nakagawa, said 60 percent of its cost savings would come from Europe, where it is losing money and has 4,500 workers, or about 13 percent of its total staff.
Nomura is the only Japanese investment bank with a presence across North America, Europe and Asia. Downsizing in Europe will weaken its competitiveness against rivals such as Goldman Sachs, said Yoichi Shinohara, a fund manager at Tokyo-based Asset Design .
Nomura posted a net loss of 46.1 billion yen ($591 million) for July-September, the fiscal second quarter, against a profit of 17.8 billion yen in April-June. The result was worse than the average 35.6 billion yen loss forecast by four analysts surveyed by Thomson Reuters.
Nakagawa said the cuts would mainly target the wholesale division, which suffered a pre-tax loss of 73 billion yen as revenues plunged and said that resources would be shifted from Europe to more promising operations in Asia and the United States.
We expect the tough conditions to continue, Nakagawa told reporters. These cuts are aimed at establishing a structure that can still respond even if the bad business environment remains intact for 18 months.
Nomura's woes mirror troubles across the investment banking industry as turmoil in financial markets, triggered in large part by the debt crisis in Europe and new regulations, squeezes trading gains and depresses fees.
Nomura estimated its exposure in Europe at $3.55 billion. It said Italy accounted for about 80 percent of that and that most if its holdings were in government securities and in positions that matured in the next five months.
Nomura's results were supported by its profitable asset management and retail divisions, underscoring the bank's position as the country's largest fund manager with an extensive network of branches across Japan.
Nomura is yet another addition to a lengthening list of Japanese firms that have posted poor quarterly results due to factors such as a strengthening yen, consumer gloom in the United States and Europe and supply-chain disruptions from the floods in Thailand. The list includes names such as Honda <7267.T>, Panasonic <6752.T> and Nintendo <7974.OS>.
Last week, Nomura's chief rival in Japan, Daiwa Securities Group <8601.T>, posted its third consecutive quarterly loss and said it would cut more than 300 jobs in Asia and Europe in a setback for its overseas expansion plans.
Among big Western investment banks, Goldman Sachs Group Inc
Nomura's loss was its first since January-March 2009, when it recorded a 215.8 billion yen loss, reflecting costs to integrate Lehman's operations.
For the full year to March 2012, Nomura is expected to post a net profit of 14.3 billion yen, according to the average estimate of seven analysts prior to Tuesday's results. Nomura does not provide an annual forecast.
The results were released after the close of the Tokyo stock market. Nomura shares ended down 3.3 percent on the day, taking the stock's decline to 43 percent compared with a 13.6 percent fall in the main stock index <.N225>.
(Additional reporting by ChikafumiHodo and Isabel Reynolds; Editing by Edwina Gibbs, Neil Fullick and Matt Driskill)