Bloomberg has the latest “hollowing-out” headline out of Tokyo: HSBC will close equity research, trading in Japan.
Europe’s biggest bank will shut its stock-research and trading businesses in Japan, joining UBS, Goldman Sachs and Citigroup in a retreat from the world’s second-largest economy, the report says, continuing:About 40 people from the equity business will lose their jobs, said two people familiar with the dismissals. The firings will amount to less than 5 per cent of the 1,100 employees the bank has in Japan, Hong Kong-based spokeswoman Vinh Tran said in an interview. She declined to give an exact figure.While we know there’s blood-letting on Wall Street and the City of London, western investment banks are in a particularly precarious situation in Japan, where they’re often perceived to be at a disadvantage to their big Japanese rivals – among other things due partly to cultural reasons.
But the biggest challenge is the virtual collapse of business – from ECM to almost all areas of the financial capital markets. The benchmark Topix index hit its lowest point since December 1983 last month, and overseas investors have sharply cut back their Japan trading.
Little wonder, as Japan flails around in what looks increasingly like its worst post-war recession, that foreign financial companies are stepping up moves to fire staff or pull expatriates out of Japan.
Bloomberg notes that in the 15 months through March, foreign financial firms fired about 4,300 people in Japan, according to Executive Search Partners. From anecdotal evidence, it looks as though April was also a grim month, with at least 400 desks emptied at the Tokyo offices of western financial firms.
Behind all this lie some bleak findings that suggest there is far more to come (or rather, to go…) According to Dealogic, which obligingly ran some figures for us, foreign investment banks, led by Goldman Sachs, Deutsche Bank, Morgan Stanley, UBS, JPMorgan and Citigroup were doing quite well in Japan’s’ ECM business from 2004 until nearly two years ago (Citi along the way absorbed Nikko Securities so could be considered a bit of a hybrid foreign-Japanese outfit in the ECM field).
All the foreign banks have steadily lost market share – in a rapidly waning ECM market – to the point where, for the year to date, there are none in the top 10 of the ECM league tables.
For the year to date, in Dealogic’s ranking of all ECM bookrunner ranking, the seven top investment banks so far are, in descending order: Nomura (with a staggering 90 per cent share and a total deal value of $3.38bn) , Daiwa Securities SMB, Shinko Securities, Citi, Ichiyoshi, Mizuho and Samsung Securities. (See total deal value for each year below).
In 2008, the top 10 list was: Nomura (with a 49 per cent share and a total deal value of $2.2bn), Daiwa, Deutsche Bank, Citi, Morgan Stanley, MUFJ Securities, Shinko, Okasan, Mizuho, Sumitomo-Mitsui Banking Corp.
And in a revealing comparison, in 2006, the top 10 list was: Nomura (with a 31 per cent share and a total deal value of $7.6bn), Daiwa, Goldman, Mizuho, Citi, Morgan Stanley, UBS, Bank of America, MUFJ, and Shinko.
While Nomura may have increased its market share, it’s in a rapidly dwindling pool. Japan’s market for IPOs for example has all but dried up, with only about eight this year, raising a total of about $80m. “Tiddly”, as one observer noted, adding: “And no US banker is going to get out of bed for that”.
Here is Dealogic’s list of all ECM volume in Japan from 2004 to the 2009 (year to date):
Japan All ECM volume 2004-09 (Source: Dealogic):
Year Deal Value () Number
2004 59,678 593
2005 46,989 422
2006 69,782 437
2007 25,333 266
2008 15,009 93
2009 (YTD) 3,730 1
It is unlikely however that Nomura, with its giant market share, is crowing, given its miserable full-year earnings figures announced on Friday.
As Bloomberg reports:Nomura Holdings Inc, Japan’s largest brokerage, posted a bigger-than-expected quarterly loss as staff costs doubled following the acquisition of businesses from Lehman Brothers. The 217.1 billion yen ($2.2 billion) deficit for the three months ended March 31 compares with a 153.9 billion yen loss a year earlier, the Tokyo-based company said in a statement today. The median estimate of six analysts surveyed by Bloomberg was a 127 billion yen shortfall.
Nomura’s loss contrasts starkly with recent positive Q1 earnings announcements from Goldman Sachs and Bank of America and may increase pressure on chief executive officer Kenichi Watanabe to cut costs, Bloomberg added. The firm is spending more than $2bn to absorb 8,000 workers it took over from Lehman in October.
“The challenge for Nomura is to reduce expenses,” S&P said in a report after Nomura’s announcement. “A substantial recovery in earnings is unlikely.”
At least, it certainly won’t come from Japan’s increasingly moribund ECM scene.
Related links:
HSBC will close equity research, trading in Japan – Bloomberg
Hollowing out, Tokyo style – FT Alphaville
Hollowing out, KBC Japan-style (2) – FT Alphaville
The truth about Tokyo – FT Alphaville