The Business Times

Mizuho’s investment bank weighs European cost cuts to stem losses

Published Wed, Aug 17, 2022 · 10:31 AM

MIZUHO Financial Group’s investment banking arm is reviewing ways to cut costs in Europe as it seeks to turnaround the loss-making business in the region, according to the unit’s top executive.

“We can’t leave the situation as it is,” Yoshiro Hamamoto, chief executive officer of Mizuho Securities, said in an interview. “We need to take steps to rightsize our expenses while at the same time working to maximize our revenue.”

Mizuho’s brokerage, which has lost money in Europe for 4 straight quarters, is considering whether to shift back-office operations in the region to elsewhere to reduce costs, he said. No decision has been made on whether the firm should cut the number of Europe-based staff, he added.

Japan’s third largest lender, a major corporate debt underwriter in the US, is struggling to make its mark in Europe following a slump in client activity in response to Russia’s invasion of Ukraine, rapid interest rate hikes and fears of a recession.

To boost revenue, management is considering to build out the derivatives business in Europe, helping corporate clients hedge against risks involved in investment-banking transactions, Hamamoto said.

The broker joins Japanese rivals that are seeking to turnaround their European investment banks amid a slump in bond and stock issuance. Nomura Holdings is working to diversify its European business after 5 consecutive quarters of losses, while Daiwa Securities Group said last year it will move part of its back-office operations in London to Japan.

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Mizuho most recently overhauled leadership at the rates-trading business in London after disagreements on strategy and performance, according to people familiar with the matter. That came after a push to expand into government bonds 2 years ago. The firm also does equities trading, in addition to advising on deals.

“Europe is a very tough market,” Hamamoto said. “It will probably be difficult for us to achieve profit” in the region before the current fiscal year ends Mar 31, he said, adding that he is also reviewing investment in the company’s information technology systems.

Across Europe, investment banks are facing dimmer prospects though credit trading has proved a bright spot. Last month, Deutsche Bank lowered the outlook for its investment bank despite beating forecasts in its trading arm, while Credit Suisse Group said it’s scaling back its investment bank in the face of mounting losses.

Mizuho Securities posted 4.1 billion yen (S$42 million) in pre-tax losses in the quarter ended Jun 30, the largest in more than 2 years, weighed down by uncertainties over rising inflation and Russia’s invasion of Ukraine, according to filings. BLOOMBERG

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