Nomura sees markets revenue beating goal as brokerage courts hedge funds

LONDON, Sept 10 (Reuters) – Nomura Holdings (8604.T), is eyeing stronger revenue growth in trading, which could increase by as much as 30% over the next three years, as it makes a renewed push to grow its business serving hedge funds, its head of global markets told Reuters.

A jump in revenue from buying and selling government bonds and equities this year, and new expansion plans, are putting the Japanese bank on course to beat a 20% three-year revenue growth target that Rig Karkhanis announced earlier this year.

“We’re seeing this big turnaround in our rates business in Europe, with the new team coming in and proving to be quite productive. A lot of the investments being made in equities, both execution services and equity products, have really kicked in,” Karkhanis said.

Revenue across Nomura’s markets unit is up 15-20% in 2024 versus last year, Karkhanis said in a recent interview. The division is Nomura’s biggest by revenue.

A push further into prime brokerage, in which banks offer hedge funds services like financing and trade execution, comes after Nomura in 2021 suffered a $2.9 billion loss from the collapse of fund Archegos – the second-biggest hit among banks.

The unraveling of Archegos shook the industry, exposing poor risk management. Nomura was put under increased regulatory scrutiny and British regulators imposed higher capital demands, which were eased last year.

Karkhanis, who was promoted to head the division in 2023, said Nomura had spent the last two years improving its risk controls, risk management and technology.

“There’s a big opportunity for us … What we have found is there is real interest from clients to diversify (away from other banks),” he said.

The initial focus is on leveraging Nomura’s existing prime businesses in the United States and Asia to encourage clients to trade a wider range of assets, Karkhanis said.

Banks like Prime Broking’s steady, predictable revenue streams, but as Archegos demonstrated it carries risks.

Prime broking is worth some $20 billion a year in revenues to banks, up from $15 billion in 2020, according to research firm Coalition Greenwich, luring banks like Barclays (BARC.L) to expand. The top banks by market share – JP Morgan (JPM.N), Morgan Stanley (MS.N), and Goldman Sachs (GS.N) – have dominated for years, however, with rivals struggling to grow.

“It’s a three, five-year plan where we will build steadily and use our balance sheet,” Karkhanis added, declining to provide any numerical targets for the prime broking plan.

Nomura employs 3,200 people across its markets division, unchanged from last year despite hiring 400 new staff in 2023, said Karkhanis, who recently returned to Singapore following a year-long stint in London.