Nomura overhauls China joint venture as losses mount

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Japan’s biggest investment bank Nomura has begun restructuring its lossmaking joint venture in China after failing to secure the licences needed to expand its business in the country.

The joint venture, which was established in 2019, has already shed 8 per cent of its staff since the end of July and may be forced to cut more jobs after an assessment likely to be completed before the end of the financial year in March 2024, said people familiar with the matter.

Nomura was one of the first foreign investment banks given permission to operate a majority-owned joint venture in China but has since struggled to make a profit. Last year its joint venture, called Nomura Orient International, made a loss of Rmb225mn ($31mn), an increase from the loss of Rmb85mn it made in 2021, according to filings.

Former Nomura chief executive Koji Nagai launched the joint venture in China as part of a plan to find growth outside Japan. Nagai wanted to secure an investment banking licence in China by the end of 2023, which would have allowed Nomura to directly compete with local banks offering lucrative services such as merger and acquisition advisory.

The bank’s failure to secure that licence, as well as other approvals to sell Japanese investment products to Chinese investors, has meant the lossmaking entity now has to “rightsize”, said one person familiar with the matter.

The person said it was clear that the losses could not be sustained indefinitely, adding that if the joint venture wanted to cut more than 10 per cent of staff, it would have to engage in a more complicated disclosure process that would include informing labour unions.

Following the recent lay-offs, Nomura now employs 259 people in China, well below the company’s target of 500 by the end of 2023.

“With a presence in China for over four decades since 1982, we have consistently sought to contribute to the development of the country’s capital markets and service the evolving needs of clients. That strategy remains unchanged,” said Nomura in a statement.

Bloomberg first reported that Nomura was planning to overhaul the business.

Nomura is not alone in struggling to turn a profit in China, where a deteriorating economic outlook and rising geopolitical tensions between Washington and Beijing have undermined ambitious expansion plans.

The Japanese bank, which reports quarterly earnings on Friday, is grappling with other problems in China. One of Nomura’s most senior figures in the region is still under a travel ban, which prevents him from leaving the country.

Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC reported losses in their China-based units in 2022. Morgan Stanley’s profits fell, while JPMorgan and UBS were the only foreign banks whose profits rose. UBS became the first foreign bank to increase its stake in a securities joint venture to 51 per cent in 2018.

The lacklustre performance last year marks a reversal from a record 2021, when a majority of the banks made a profit in their mainland operations after Beijing allowed them to start taking full ownership of the units for the first time following a trade deal with the US.

Foreign banks’ involvement in initial public offerings in mainland China has fallen to its lowest level in more than a decade, with Japan overtaking it as a driver of investment banks’ revenues from equity fees for the first time in almost 25 years.

Additional reporting by Cheng Leng in Hong Kong