camila July 7, 2021

FRANKFURT (BLOOMBERG) – Nomura Holdings is pulling the plug on a large chunk of its hedge fund business as the deep losses the lender sustained through the collapse of Archegos Capital Management continue to ripple through the organisation.

The Japanese bank has decided to stop offering cash prime brokerage services in the United States and Europe, sources familiar with the matter said. It has already informed regulators in those jurisdictions and some clients of its decision, and given them about six months to find a new provider, the sources said, asking not to be identified discussing the private information.

A spokesman for Nomura declined to comment.

Japan’s biggest brokerage lost almost US$3 billion (S$4 billion) when Archegos, the hedge fund-like family office built by Mr Bill Hwang, suddenly unravelled in late March. Rumours about deep cuts to Nomura’s prime brokerage in the US and Europe began circling soon after as the bank decided to rein in risk in the unit first.

The decision is a setback to chief executive Kentaro Okuda’s effort to expand business in the US, which has the world’s biggest pool of banking fees.

To help, he named Wall Street veteran Christopher Willcox co-head of its Americas unit and pledged to add non-Japanese outside directors. Among expansion efforts, executives hoped to earn more from the prime brokerage.

Cash prime brokerage is the business of lending to hedge funds against shares of companies they hold and pledge as collateral in what is usually called a margin loan. That contrasts with swap prime brokerage where clients do not outright own the shares and instead use derivatives such as total return swaps. Archegos used total return swaps to build up huge exposure to a small number of firms.

There is no change in Nomura’s prime brokerage business in Asia including Japan, one person said. The bank will try to offer some cash prime brokerage services in Europe and the US by using other products and it will continue to have clients in the US and Europe, the person said.

Nomura’s prime brokerage revenue from the US and Europe is dwarfed by what its other markets businesses earn there, so as the unit pares back in those regions the impact on earnings is likely to be muted, an executive previously told Bloomberg News.

Mr Okuda has assured investors that management takes the incident in the US “very seriously”. The company hired a law firm to review what happened. It also suspended some senior executives at its investment bank and replaced its global head of credit risk.