Like its European rival Credit Suisse, Japanese financial giant Nomura and its management were badly shaken by the fallout from the Archegos trading blowup. Nomura lost billions of dollars on the deal, and was second perhaps only to Credit Suisse.
In the aftermath of the blowup, Nomura hinted that it would soon enact sweeping cuts at the prime brokerage division responsible for the losses. And on Tuesday afternoon in the US Bloomberg reported that the bank would follow Credit Suisse by slashing most of its US and European-focused prime brokerage business, leaving its slice of the potentially lucrative (but sometimes disastrously loss-making) business up for grabs.
The cuts will focus on the bank’s US and European business, according to Bloomberg. In the wake of the Archegos blowup (after it was revealed that Credit Suisse made only $17MM in fees from its business relationship with Archegos, critics have been warning that prime brokerage is a risky business, and that only the top-performing players can operate profitably (notice: Goldman reportedly only negligible losses from the ordeal after being first out the door).
Nomura Holdings Inc. is pulling the plug on
a large chunk of its hedge fund business as the deep losses the lender sustained through the collapse of Archegos …The Japanese bank has decided to stop offering cash prime-brokerage services in the U.S. and Europe
— SpotGamma (@spotgamma) July 6, 2021
Credit Suisse has moved to cut back on other business ventures perceived to be too risky, and it remains to be seen whether this is the end of this wave of cuts, or just the beginning.
Perhaps foreshadowing the cuts, Bloomberg reported yesterday that a handful of equity analysts were jumping ship, thwarting what Bloomberg described as the bank’s efforts to hire and retain them. Thanks to their departure, Nomura has been forced to halt coverage of dozens of firms, hurting the bank’s chances of winning lucrative banking business (which, remember, is the reason banks employ analysts in the first place).
Here’s a breakdown of who left (text courtesy of Bloomberg):
- Junko Yamamura and Yoshitaka Nagao, who covered the leisure and amusement sector, and broadcasting and advertising industry, respectively, are no longer with the company, according to people familiar with the matter, who asked not to be identified as the detail is private. Both were ranked in the top two for their industries in an annual survey of institutional investors conducted earlier this year by Nikkei Veritas. A Nomura spokesman declined to comment.
- Yamamura plans to join Citigroup Inc. in Japan, according to a person with knowledge of the matter. Nagao will join Bank of America Corp.’s Asia-Pacific research team in Tokyo.
- The brokerage suspended its coverage of 29 companies, including Nintendo Co. and Rakuten.
- It also halted coverage of a number of real estate investment trusts covered by Tomohiro Araki, a REIT analyst.
Notably, Nomura was the first Japanese investment bank to establish a research department (it dates back to 1906), and the withdrawal from the US and European prime brokerage business is in keeping with the bank’s theme of focusing its efforts inwards and cutting risky business lines abroad.
The bank covers more than 1,000 companies around the world, and is also home to macro and derivatives strategists like Charlie McElligott.
Meanwhile, we can’t help but wonder whether this means McElligott may soon need to find another home for his forecasts about the next gamma squeeze.