According to Reuters, Japan's largest brokerage house --
Nomura Holdings Inc.
) -- is moving ahead with the implementation of its cost-cutting
strategies. The company plans to let go hundreds of employees,
particularly in the equities and investment banking division, as
the unit was hit harshly owing to the ongoing difficult economic
conditions. The company aims to trim down expenses and reinstate
profitability in its overseas operations.
Though the extent of the streamlining and cost-savings efforts have
not been disclosed by the company, according to the source, Nomura
is looking for a target of $750 million in annual cost savings.
These savings would be added over the previous target of $1.2
billion of cost savings plan launched in the latter half of 2011,
which also included 1,000 layoffs.
Based on the downfall in earnings in fiscal first quarter 2013 and
the ongoing pressure in Europe, most of the job cuts will take
place in Europe as well as in Asia and the Americas. Previously,
Nomura acquired the European and Asian operations of the failed
Lehman Brothers in 2008, while it established its own operations in
the United States.
Since the first quarter, Wholesale revenues for Nomura were driven
by Fixed Income, which prompted the company to plan moving some
resources to fixed income to increase profitability.
Among the U.S. banks, which are sailing on the same boat as Nomura,
) laid off 2,935 employees in 12 months ended March 31, 2012 as
part of its cost-cutting efforts. Majority of the banks worldwide
are struggling to contain costs amidst the gloomy macro-economic
factors and Eurozone crisis.
HSBC Holdings plc
The Royal Bank of Scotland Group plc
) have also significantly trimmed down their workforce as part of
their cost-cutting measures.
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The near-term outlook of an economic recovery remains dismal.
Moreover, the regulatory landscape is becoming stringent with the
Federal Reserve's new proposed rules that take into consideration
both Basel III as well as the Dodd-Frank reforms. These proposed
rules require banks to maintain higher capital ratios that will
significantly alter their investment and lending capacities and
dent the revenue prospects.
Consequently, banks will adopt rigorous cost-cutting measures to
maintain a sound capital buffer in order to withstand any financial
crisis. However, with numerous job losses, unemployment rate could
worsen and put the economic recovery at stake.
In the current sluggish markets, which are marred by new
regulations, the banks have resorted to downsizing in order to
reduce expenditures. Moreover, concerns regarding the European debt
crisis have added to their woes.
Overall, until revenue generation revives, a worsening
cost-to-income ratio will continue to force many more banks to
reduce their costs through job cuts as they need to maximize
profits in order to boost capital ratios.
Nomura currently retains a Zacks #4 Rank, which translates into a
short-term Sell rating.