As the European financial crisis worsened in November, the executive in charge of capital markets at Nomura Holdings Inc. proposed a plan to buy up billions of dollars of Italian government bonds with the firm's money, people familiar with the matter said.
The bet was part of a broader plan by the executive and his boss, both former Lehman Brothers executives to transform Japan's dominant brokerage into a profitable investment bank focused on fixed income, much like their old firm, which was best known for trading bonds.
Nomura's joint deputy president, Jasjit "Jesse" Bhattal, 55 years old, who pushed both, resigned last week minutes before a group of senior executives were scheduled to meet, people familiar with the matter said.
His head of capital markets, Tarun Jotwani, 51, who had proposed the Italian bond bet, was planning to attend the meeting. Instead, he was pulled into another office and fired, people familiar with the matter said.
In 2010, Mr. Bhattal who was tapped to lead its global expansion, which itself had struggled since Nomura's striking 2008 acquisition of Lehman Brothers European and Asian operations.
This isn't the first time Nomura has had to cut back on its global ambitions. In 1998, Nomura posted a nearly $1 billion loss, mostly on commercial real-estate loans in the U.S. That bet, led by real-estate financier Ethan Penner, had earned big returns through the 1990s, before the market tumbled and the risks became more apparent. Nomura closed the business and ended its global expansion effort at the time.
In the case of Messrs. Bhattal and Jotwani, they had lost a battle with Tokyo headquarters for more control of Nomura's capital and influence over the direction of the firm, people familiar with the matter said. Messrs. Bhattal and Jotwani fought for cuts in areas such as equities trading and advisory work and increased investment in fixed income, which they believed would make Nomura more profitable, some people familiar with the matter said. This clashed with senior executives' long-held ambitions to be a full-service investment bank, the people said.
Other people familiar with the matter paint a less marked picture, saying the two men left as part of cost-cutting efforts, and that disagreements over strategy played no role in the shakeup.
In contrast to Mr. Bhattal's desire to cut costs and focus the bank, Nomura wants to remain a global investment bank while focusing on Asia, these people said. For areas outside Asia-Pacific, the bank wants to be very narrow and deep, they said.
Since the Lehman acquisition, the businesses Nomura acquired struggled to consistently make money, contributing to an 80% decline in Nomura's share price since the deal. In November, Nomura announced it would cut $1.2 billion in costs, primarily is the so-called wholesale businesses that Nomura acquired from Lehman.
The cuts came after the overseas operations posted a pretax loss of 32.75 billion yen ($426.3 million) in the April-June quarter, more than triple the 9.73 billion yen loss it racked up in the fourth quarter of the Japanese financial year, which ended in March. Both trading and investment banking performed weakly.
Mr. Bhattal's lieutenant in this effort was Mr. Jotwani, a Lehman alumni who made his name by investing in high-yield credit. The plan to buy Italian government debt, which included hedges to limit risk, was one of many proposed investments that Mr. Jotwani hoped to make to boost the firm's profitability, said people familiar with the matter.
The firm is facing a possible downgrade by Moody's Investors Service, which could make funding more expensive. Nomura's rating is one of the lowest of any major financial institution. A decision by Moody's is expected in early February.Takumi Shibata, who was chief executive of the wholesale division before Mr. Bhattal, has taken his old job back and may stay as long as three years, people familiar with the matter said. On Tuesday Nomura promoted an executive who worked for Mr. Jotwani to run the firm's fixed-income operations, effectively splitting up that job
Rather than raise its holdings of European government debt, Nomura cut its holdings of Italian investments from $2.8 billion as of Sept. 30 to $467 million on Nov. 24.
Investing in European government bonds had grown even more controversial after commodities broker MF Global Holdings Ltd., went bankrupt on a $6.3 billion bet on European government bonds by its CEO Jon S. Corzine. Nomura, like MF Global, depends on investors to provide much of its funding.
People familiar with the matter said top Nomura executives did not discuss the plan to buy Italian government debt.
Nomura is under pressure to cut back on its global operations. "Their overseas expansion has not been judged successful," says Hiroyuki Ozaki, a professor of finance at the Tokyo University of Technology and a former Nomura banker. "Nomura has to decide what they will do next, probably their international team will be downsized and they will concentrate on profitability and take less risks," he added.
read more: Olympus Wealth Management
No comments:
Post a Comment