Steve Ashley’s Nomura looks an attractive destination for fixed income bankers

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If you want to work for Steve Ashley, the mild-mannered mega-trader who was elevated to become head of global markets for the whole of Nomura late last year, you may have missed your chance.

Headhunters say Ashley did a lot of hiring in 2012 and that most of his recruitment is now over. "He hired a lot of guys," said one headhunter who spoke on condition of anonymity because he works with Nomura. "Around 50-60 front office bankers joined Nomura last year."

"He hired 50 people," said another headhunter, speaking on similar terms. "Steve has massively upgraded fixed income at Nomura. He's completely remodeled the investment bank and has made it far more relevant as a fixed income house in the US and Europe."

Nomura declined to comment for this article, but in 2013 headhunters say Ashley will be focused on filling in the gaps at Nomura, rather than on big hiring. The bank is currently advertising only junior positions for analysts and associates on its website.

Despite Ashley's efforts, Nomura still can't be classified as a big fixed income player globally. It's market share is only around 4%, putting it on a par with UBS before the Swiss bank pulled back - although not far behind Morgan Stanley which purports to remain committed to the fixed income business.

In an interview published in Finance Asia earlier this month, Ashley said Nomura was essentially a "new organisation" in terms of fixed income. He added that Nomura has no intention of going for fixed income market share across the board, but that it aims to focus on a few areas of expertise. One of these would appear to be rates, Ashley's own area of specialism: "We’ve established a strong EMEA rates business, while our securitised products trading business in the Americas has also performed strongly," Ashley told Finance Asia.

As Ashley's star has risen at Nomura, others' have fallen. Three months after he arrived, Ashley swept out 30 senior managers from Nomura's existing fixed income business. He's also cut equities staff and cut investment bankers, many of whom were inherited from Lehman Brothers' European business. Ashley's hires have included people he's worked with previously, such as Gary Cottle, a former colleague from RBS.

As Ashley ascends, Nomura is looking more and more like a fixed income house. In the third quarter, nearly 60% of the bank's wholesale revenues came from fixed income, above the 55% JPMorgan analysts say is the average for the investment banking industry as a whole. And while JPMorgan predicts that fixed income will account for a lower proportion of banks' revenues in future, the opposite appears to be happening at Nomura, which looks increasingly focused on fixed income as a source of profitability. In a statement today, Koji Nagai, Nomura's Group chief executive officer, singled out fixed income for special praise. "Wholesale had its best quarter for pretax income in three years driven by a marked improvement in revenues and tangible progress in its cost reduction program. Fixed income remained a key contributor to wholesale earnings," Mr. Nagai said.

Even better, Nomura is allowing its rates bankers to take more risk. Value at risk in the bank's rates business rose 56% between March 2011 and March 2012. By comparison, Goldman Sachs cut value at risk in its own interest rate by business by 46% between December 2011 and December 2012. Nomura's business is, however, starting from a smaller base - suggesting VaR will inevitably rise as the business expands.

All of this sounds like good news for any fixed income bankers who are already working at Nomura, and may help Ashley attract talent from the likes of Morgan Stanley, where rates bankers in particular are said to have been underpaid and to feel undervalued this year.

None of this is to say that things are going to stay great at Nomura. In the nine months ending December 2012, the bank's profit margin was just 8% - suggesting the Japanese bank still needs to keep a strong hold on costs and may not be in a position to pay its people well. Accordingly, 'net trading gains' at Nomura rose 50% year-on-year in the first nine months of the year ending December 2012, but compensation across the bank declined 3.4%.

More worryingly, while Ashley's rates team may have driven fixed income revenues at Nomura in 2012, the outlook for the rates business is less promising in 2013. As the chart below demonstrates, Deutsche Bank analysts are predicting a drop in rates revenues, both as the business becomes more commoditized ahead of Dodd Frank as and the helpful effects of Europe's Long Term Refinancing Operations dwindle. Over time, Deutsche thinks rates revenues across the industry could fall 45%-50%. If Steve Ashley can maintain Nomura's new luster against these headwinds, Nomura will be a very attractive destination for fixed income bankers indeed. 

Deutsche Bank rates

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