Nomura, Credit Suisse plan further cost reductions

Nomura and Credit Suisse both announced increased cost cutting efforts in their quarterly results statements today which will reduce headcount in their European operations.
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Nomura and Credit Suisse both announced increased cost cutting efforts in their quarterly results statements today which will reduce headcount in their European operations.

Nomura Holdings said it would cut US$1 billion in costs, following its first quarterly loss in two-and-a-half years. The Japanese financial conglomerate, whose activities span asset management, retail, wholesale and investment banking, announced US$400 million in budget cuts in July as well as 400 job losses revealed in September. Today, CFO Junko Nakagawa said 60% of job cuts would fall in Europe, where the firm employs around 4,500.

Nomura lost 46.1 billion yen (US$591 million) in the quarter to September. The firm estimated its net country exposure to Europe at 3.55 billion yen, mostly to Italy. In the quarter to March 2009, Nomura reported a loss of 215.8 billion yen (US$2.76 billion), attributed largely to the costs of integrating Lehman Brothers’ European and Asian businesses.

Nomura’s total net revenue for Q2 2011/12 was down 9% quarter-on-quarter at 301.6 billion yen but 9% up on the same quarter last year. Wholesale banking net revenue was 44% lower than the previous quarter at 79.3 billion yen (US$1.01 billion), a 51% fall on Q2 2010/2011. The division reported a loss before tax of 73.1 billion yen, which was blamed on international businesses being “heavily impacted by a poor macro economic environment”. Nomura added that client flows in its global markets business grew throughout the quarter, but “challenging trading conditions led to a decline in overall revenues”. Investment banking revenues declined 40% quarter-on-quarter “due to a slowdown in equity financing activities across all regions”.

Nomura said that although the cost reductions would take place as a “firm-wide” initiative, they would be focused “primarily” in its wholesale activities. Given continuing “market uncertainties driven out of Europe”, Nomura said it would “reallocate resources from EMEA to Americas and AEJ (Asia ex-Japan)”, with the aim of improving earnings “by lowering breakeven point through tighter business focus and enhanced cost efficiencies”.

EMEA contributed 11.5 billion yen to Nomura’s wholesale banking revenues in Q2 2011/12, a sharp fall from 40.1 billion yen in the previous quarter and 55.5 billion yen a year ago.

In equities, lower overall revenues – which fell 41% quarter-on-quarter and 39% on an annual basis – were attributed to a “difficult trading environment for derivatives and convertibles”, particularly in EMEA and the US. Nevertheless, client flow business grew 8% on the previous quarter, up 29% against 12 months ago. The firm attributed growing client flows in equities over the period to increased market share on the Tokyo Stock Exchange, greater presence among global clients, enhanced pan-Asia research capabilities and an expanded electronic trading offering”.

Nomura made no further comment on its plans to integrate its Instinet agency brokerage business into the firm’s equities franchise. In April, Nomura made moves to unify Instinet’s management with that of its electronic execution division, by appointing Anthony Abenante, co-CEO of Instinet with Fumiki Kondo, as joint head of Nomura innovative electronic execution, with Emad Morrar, global head of product strategy and principal investments at Nomura.

Credit Suisse cuts

In its Q3 2011 financial statement, Credit Suisse announced that it will cut a further 1,500 jobs in addition to the 2,000 announced in July. The Swiss bank, which currently employs around 50,000 people, said the combined cuts would bring savings of more than US$2 billion.

In Q3, Credit Suisse net profit rose 12% to 683 million Swiss francs (US$768 million), with an underlying net profit of 441 million Swiss francs once an accounting gain on the value of its own debt is removed. Pre-tax investment banking losses of 190 million Swiss francs reflected a “challenging and volatile market environment”, said Credit Suisse, which reported overall net revenues of 2,494 million Swiss francs for the division, including gains from debit valuation adjustments. Investment banking net revenues were down 27% on Q3 2010 and 12% lower than Q2 2011. Credit Suisse said equity sales and trading results had been adversely impacted by the volatile market environment, with net revenues falling 7% on the previous quarter to 1,182 million Swiss francs, albeit up 9% against Q3 2010.

UBS announced 3,500 job cuts and savings of US$2 billion in August and is expected to announce further changes to its investment banking operations later this month.