Nomura Expects Market Revenue to Exceed Targets as Brokerage Engages Hedge Funds, Reports Reuters

By Tommy Reggiori Wilkes and Dhara Ranasinghe

LONDON – Nomura Holdings is anticipating significant revenue growth in its trading operations, potentially rising by up to 30% over the next three years. This comes as the bank intensifies efforts to expand its services for hedge funds, according to the head of its global markets division.

A surge in revenue from trading government bonds and equities this year, coupled with new expansion strategies, suggests that the Japanese bank may surpass its previously set target of 20% revenue growth over three years, announced by Rig Karkhanis earlier this year.

Karkhanis commented on the positive changes within their rates business in Europe, highlighting the productivity of a newly assembled team. He noted that the investments in equities, including execution services and products, have started to yield substantial results.

The markets division, which is Nomura’s largest by revenue, has experienced a revenue increase of 15-20% in 2024 compared to the previous year, Karkhanis mentioned during a recent interview.

The firm is also making a stronger move into prime brokerage services, which include financing and trade execution for hedge funds. This shift comes in the wake of a $2.9 billion loss in 2021 due to the collapse of the Archegos fund, which marked one of the heaviest losses among banks.

The fallout from Archegos rattled the industry and highlighted deficiencies in risk management practices. As a result, Nomura faced heightened regulatory scrutiny, with British regulators imposing increased capital requirements that were relaxed last year.

Since taking over leadership of the division in 2023, Karkhanis indicated that Nomura has focused on enhancing its risk controls, management, and technology over the past two years.

"There’s a big opportunity for us… We’ve noticed genuine interest from clients in diversifying away from other banks," he said.

Nomura’s initial strategy is centered on leveraging its existing prime brokerage businesses in the U.S. and Asia to encourage clients to engage in a broader array of asset trades.

While prime brokerage services offer stable, predictable revenue streams for banks, the collapse of Archegos underscored the associated risks. Research firm Coalition Greenwich estimates that prime brokerage generates approximately $20 billion annually in revenues for banks, an increase from $15 billion in 2020. However, the predominant share of this market is held by major banks such as JP Morgan, Morgan Stanley, and Goldman Sachs, making it challenging for others to expand.

Karkhanis added, "It’s a three- to five-year plan where we’ll build steadily and utilize our balance sheet," although he refrained from sharing specific numerical targets for the prime brokerage initiative.

Currently, Nomura employs 3,200 individuals within its markets division, maintaining the same staffing level as last year, despite hiring 400 new employees in 2023. Karkhanis has recently returned to Singapore after a year-long assignment in London.