A pedestrian walks past the Nomura Holdings headquarters in Tokyo. Japan’s biggest brokerage has managed $18bn of agency-note sales in the US this year, putting it ahead of JPMorgan Chase & Co as the third-biggest underwriter.

Bloomberg/Tokyo

Nomura Holdings is doggedly expanding in a US bond market that pays fees as low as 0.003%, even as it slashes headcount in London and one of its biggest shareholders says to get out of unprofitable overseas businesses.
Japan’s biggest brokerage has managed $18bn of agency-note sales in the US this year, putting it ahead of JPMorgan Chase & Co as the third-biggest underwriter. The Tokyo-based investment bank is on track to manage a record amount of the debt at a time when other institutions such as Goldman Sachs Group and UBS Group are scaling back.
Nomura is looking to capture more overseas business even after its existing operations lost money for the past five years. As a brokerage, the company can’t leverage lending relations with US companies to boost corporate bond underwriting like bank rival Mitsubishi UFJ Financial Group has done. It’s gained more traction in US agency sales as some American and European banks retreat in the face of more stringent capital regulations.
“We’ve seen several competitors change or reduce their financial resource commitments to this business even as we’ve grown,” Jonathan Raiff, Nomura Americas global markets head, said. “We aim to be in areas where we can be most impactful with clients, and do it profitably while delivering attractive returns.”
Barclays has led the underwriting of US agency bonds this year with $43bn, more than double Nomura’s total, according to data compiled by Bloomberg. Wells Fargo & Co ranks second, managing $27.6bn. The notes represent the corporate debt of companies with links to the US government, though they generally aren’t explicitly federally guaranteed.
Nomura reported a profit of ¥2.7bn ($22mn) from overseas operations in the quarter ended June 30, after losing a total of ¥120.5bn abroad in the three years to March. Almost 30% of its revenue from fixed income in its fiscal first quarter was earned in the Americas, Nomura Chief Financial Officer Shigesuke Kashiwagi said in July.
The company is cutting about 60 fixed-income and credit- derivative positions at its global markets operation in London, a person familiar with the situation said this month. Around 44% of Nomura’s 28,672-strong workforce at the end of March 31 were overseas, after its purchase of Lehman Brothers Holdings’ Asian and European units in 2008.
“What worries me about Nomura is you don’t know what’s going to happen, there could be a big blow-up,” said Edwin Merner, the president of Atlantis Investment Research Corp in Tokyo. He’d rather put money in small- to medium-sized brokers whose valuations should rise if Japan’s stock market gains.
Harris Associates, a Chicago-based money manager that’s been building its stake in Nomura, wants the company to divest overseas businesses that can’t earn their cost of capital in the medium to long term, David Herro, chief investment officer for international stocks, said.
Nomura is focused on building rates offerings in the Americas and the agency business is a key component of that, Raiff said.
The brokerage’s share has climbed 15% so far this year to ¥795.1, compared with a 12% gain in Japan’s Topix share index.
Agency bonds offer an easier market for Nomura to win mandates in, with only a handful of issuers, though average fees for underwriting are less than half what can be earned on corporate notes and can be easily lost if some trades go wrong, according to Martin Malone, a global macro policy strategist at London-based brokerage Mint Partners.
“The opportunity is that there are less major investment banks than there were eight, nine years ago,” said Dan Fuss, vice chairman at Loomis Sayles & Co. “The money to be made is by being in the middle of the market, to be the intermediary.”
Agency debt issuance looks set to rise for the first time in five years, after declining as Fannie Mae and Freddie Mac were forced to shrink their investment books and banks and insurers unwound crisis-area borrowing from the Federal Home Loan Banks.
In April, Nomura was the sole manager of a $500mn sale by Freddie Mac, and last month also managed a $50mn deal for the agency. That transaction paid fees of just 0.003%, according to data compiled by Bloomberg.
Average fees collected by agency bond managers this year are higher at 0.188%, versus 0.516% for US corporate notes and 0.415% for Japanese company debt sales. The agency market was also four times larger than Japan’s corporate bond market last year, even after shrinking in size to $350bn from $1.2tn in 2010, according to Bloomberg data compiling offerings of at least $50mn with maturities of 540 days or more.
Mizuho Financial Group and Mitsubishi UFJ have underwritten almost $40bn in investment-grade company notes in the US this year, while Nomura has co-managed only one such deal in the period and that was a sale by a Japanese bank. It’s done better on high-yield corporate debt, managing $2bn of offerings, Bloomberg-compiled data show.