* Announcement on cost cuts expected in early September
* Sources say cuts will target equities and investment banking
* Biggest cuts seen in Europe, but Asia and U.S. also impacted
* Nomura will shift resources to fixed income, other promising areas
By Nathan Layne and Emi Emoto
TOKYO, Aug 27 Nomura Holdings is finalising plans to cut hundreds of jobs, mainly in equities and investment banking, in an overhaul aimed at restoring its overseas operations to profitability, people with knowledge of the planning within Japan's largest brokerage said.
The cost-cutting will be part of a new strategic blueprint for Nomura being mapped out by Koji Nagai, who took over as CEO this month and has promised to rebuild the investment bank from the "ground up" after an insider trading scandal that forced the resignation of its top two executives.
While the size and scope of the streamlining are still being debated, one analyst estimated Nomura could target $750 million in annual cost savings, on top of a nearly completed $1.2 billion cost-cutting drive. The plan will be made public early next month, according to people with knowledge of the matter who declined to be identified ahead of an official announcement.
Executives are looking to focus the cuts in cash equities, a business hit hard by the industry-wide slump in trading volumes but one that Nomura, which ranks among the top players in London, has trumpeted as a strength.
Investment banking positions outside a set of sectors identified as strategic are also at the front of the line for cuts, the sources said. Nomura declined to comment.
Europe, which employs around 4,000 people and generated 76 billion yen, or $970 million, in losses over the past year as the region slipped into its ongoing debt crisis, will account for the largest portion of the cuts. But Asia outside Japan and the Americas will be impacted as well.
"If you look at our earnings and the economic environment it's obvious what needs to be done in terms of geography and business lines," a senior executive told Reuters.
Nagai and new Chief Operating Officer Atsushi Yoshikawa are keen to send a signal that they are not out to retreat from Nomura's global ambitions. Nomura acquired the European and Asian operations of stricken Lehman Brothers in 2008 and has built out its operations in the United States on its own.
The plan will also highlight a shift in resources to more promising areas, such as fixed income, where it has been able to build market share and deliver consistent results. Nomura has made several key appointments in the past few months to shore up the business following the departure of ex-Lehman executive and wholesale division head Jasjit Bhattal in January.
LOWER COST BASE
Nomura has already lowered its cost base significantly through the $1.2 billion cost-cutting plan launched late last year, which eliminated some 1,000 jobs. The wholesale division overseeing fixed income, equities and investment banking had turned profitable for two quarters before slipping back into the red in the three months to end-June.
Tough market conditions have already prompted its rivals - including Morgan Stanley and Deutsche Bank - to embark on another round of cuts. Traditional cash equity jobs have been in the line of fire across the industry given the slump in volumes and growth of electronic trading.
As part of the overhaul, Nomura is expected to accelerate the integration of electronic brokerage Instinet and the former trading platform of Lehman Brothers, one of the people said.
Analysts say Nomura faces the challenge of cutting enough to make the wholesale division profitable but not so deeply that it hinders its ability to capitalise on business opportunities, especially if markets recover. Nomura's international operations have become an integral part of the service it offers clients, from bringing Japanese capital into overseas markets to advising on cross-border acquisitions, often involving Japanese firms.
"The era of only operating in Japan is long over. A full retreat to the home market is not an option," said Credit Suisse brokerage analyst Takehito Yamanaka.
The cuts were flagged by Nagai and Yoshikawa in late July when the duo told investors they would embark on a one-month review of Nomura's operations.
They promised a break with the past strategy of former CEO Kenichi Watanabe and COO Takumi Shibata, the architects of the troubled Lehman acquisition who set out to transform Nomura from a conservative, domestically focused securities house into a global investment banking titan.
Watanabe and Shibata were forced out under pressure from Japan's financial regulators because of Nomura's slow response to widespread compliance problems.
SHIFT OF RESOURCES
In a conference call with analysts on July 26, Yoshikawa said Nomura needed to accelerate a shift of resources from Europe, the Middle East and Africa to more promising markets in Asia and the United States.
Yoshikawa also said then that the equities division and investment banking - outside focus sectors including financial institutions and retail and energy companies - would be a target of the review.
Credit Suisse's Yamanaka estimates Nomura needs to cut costs by an additional $700-750 million to achieve a return on equity of 4 percent - a target based on a recent peak in the January-March quarter and introduced on the conference call.
But others see the possibility of deeper cuts to appease investors eager to see immediate results and a bump in the stock price, which has fallen by a third from its 2012 peak in mid-March.
Nomura is also under pressure from Moody's Investors Service, which cut its credit rating this year to within a notch of "junk" status, citing losses in its overseas operations.
"The market would consider the cuts significant if they are larger than the $1 billion cut in the wholesale division in the previous plan," said Deutsche Securities analyst Masao Muraki.
Nomura's profitable operations in Japan, led by its retail and asset management businesses which have effectively been subsidizing losses overseas, are not a primary target in the latest round of cuts, the senior executive said.
"It's been three years since we took on the people from Lehman and we can't just continue piggybacking on the domestic business," Yoshikawa said on the late July conference call. "We've been making incremental cuts while keeping the same overall strategy, and that has not been enough."