NOMURA Holdings is overhauling its China business after losses there snowballed, reflecting setbacks to plans by Japan’s biggest brokerage to expand on the mainland.

The firm’s Shanghai-based joint venture is reassessing its strategy, according to sources familiar with the matter. Goals unveiled four years ago to raise its headcount to 500 and become a fully licensed securities house by the end of 2023 are not likely to be achieved, the sources said, asking not to be identified because the matter is private. Nomura Orient International Securities has cut jobs and seen a number of departures following a management reshuffle earlier this year, the sources added.

The venture, which was launched right before the pandemic, has since had to contend with China’s slowing economy and stumbling stock market. For chief executive officer Kentaro Okuda, the faltering expansion presents another hurdle in his quest to find new sources of growth after net income fell for three straight years. Nomura reports quarterly earnings on Friday (Oct 27).

“It is great timing to review, reassess the business” and adjust priorities, said Kenji Teshima, head of Nomura’s China committee, which guides the firm’s direction on the mainland. China’s Covid restrictions “severely limited the ability to grow the business” and the market environment has since “changed dramatically”, he said.

While Nomura’s struggles in China are shared by other global firms that have had to temper their initial exuberance, its losses have exceeded many of them. The lack of profits has raised concerns by the venture’s state-backed partners even as client accounts and assets under management continue to grow, the sources said.

Since its launch in late 2019, Nomura Orient International’s bottom line has kept worsening. Losses more than doubled last year to a record 225 million yuan (S$42.2 million), filings show.

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Among major firms operating on the mainland, only Credit Suisse’s joint venture fared worse. Global banks from Morgan Stanley to Goldman Sachs Group have scaled back ambitious expansion plans and profit goals amid the deteriorating geopolitical climate and economic outlook in China. Japanese companies are doing similar, a recent survey showed.

Headcount at Nomura Orient International peaked at 281 in July before dropping to 259 at the end of September. Several department heads, including in wealth management, compliance and risk management, have left this year amid high market turnover, though they have since been replaced, the sources said.

“We have to be at the appropriate size to our business,” said Teshima, an investment banker who replaced Toshiyasu Iiyama as China Committee head earlier this year. The firm should only increase headcount as revenue grows, he said.

Managing wealth for the rich in China was one of three growth areas laid out in 2019 by Koji Nagai, then Nomura’s CEO and now chairman, after the country began to open up its financial industry to foreign players.

“We tried to be very domestic in the first place,” Teshima said. A focus on cross-border business is probably a better way to serve clients in China, who open accounts because they expect Nomura to bring international content to them, he added.

With its application for an investment banking license still pending, Nomura may also look at options such as asset management, financial advisory as well as trying to facilitate investments across the mainland for qualified institutional investors, according to sources with knowledge of the matter.

Nomura Orient International managed about 16 billion yuan in assets as at September, an increase of about 48 per cent since December. The number of accounts climbed almost 24 per cent in the same period.

“With a presence in China for over four decades since 1982, we have consistently sought to contribute to the development of the country’s capital markets and service the evolving needs of clients,” Nomura said. “We are working constructively with our joint venture partners to determine the most viable path for our onshore business to achieve this long-term objective.”

Nomura appointed Mitsutaka Kitamura in January as general manager of the venture, taking over from Sun Dongqing, who became vice chairperson. Sun was a star hire from China International Capital (CICC) in 2019. She had helped to create a wealth management team at CICC, one of the mainland’s largest brokerages, and led the operation herself from 2011 to 2017, according to filings.

However, her tenure managing Nomura Orient International was bumpy, according to the sources. Sun had clashed with senior managers over matters such as how to execute its wealth management services and cooperate with other group units, the people said. Nomura declined to comment on “hearsay”.

Masao Hyonotani, who served as first deputy China Committee head from 2021 to 2022, undertook an internal review that concluded the unit’s wealth operations were inadequate, the sources added.

Nomura said it is not in a position to “confirm, deny or discuss details of such internal reviews which are confidential in nature”.

Meanwhile, Nomura’s state-backed partners, Oriental International (Holding) and Shanghai Huangpu Investment Holding (Group), who hold a combined 49 per cent stake in the joint venture, have been engaged in discussions on how to revive the business, the sources said.

Calls to Oriental International and the local authority that oversees Shanghai Huangpu Investment went unanswered.

“They want to see a profitable situation as soon as possible. So do we,” Teshima said. “They supported the initial plan because that was the right thing to do at that time. Now they also appreciate the environment is changing.” BLOOMBERG