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In an effort to streamline its investment banking division amidst the sluggish macroeconomic environment, Nomura Holdings, Inc. has announced 30% job cuts. This cost-cutting initiative follow Nomura’s $1.2 billion expense-management plan – including 1,000 layoffs – launched in the second half of 2011.

With the latest job cuts, the bank intends to accomplish its aim to reduce costs by $1 billion. It plans to eliminate hundreds of employees in the equities and investment banking division since the unit was badly hit by the ongoing economic difficulties. Further, the company aims to trim down expenses and reinstate profitability in its overseas operations.

Europe, Middle East and Africa will witness around 45% job cuts, whereas its American operation will have approximately 21% deduction. Moreover, the company will slash 16% of its Japanese workforce, while the rest of Asia will see 18% reduction in headcount.

Back in 2008, Nomura had acquired the European and Asian operations of the failed Lehman Brothers. Despite taking such a step, the Japanese investment brokerage firm failed to attain a suitable position in the investment banking market.

Majority of the global banks are currently struggling to bring down costs amidst the gloomy macro-economic factors and Eurozone crisis. Nomura’s net income for the first quarter of fiscal 2013 was 1.89 billon yen ($24.19 million), an 89.4% drop compared with the previous-year quarter. Additionally, expenses increased 18.1% year over year.

Among the U.S. banks, which are sailing on the same boat as Nomura, Bank of America Corporation (BAC - Analyst Report) plans to lay off 16,000 employees by 2012 as part of its cost-cutting efforts. Additionally, Europe-based banks like Deutsche Bank AG (DB - Analyst Report), UBS AG (UBS - Analyst Report) and Credit Suisse Group (CS - Snapshot Report) have significantly trimmed down their workforce.

Our Viewpoint

As the near-term outlook of an economic recovery remains bleak, banks have been increasingly adopting rigorous cost-cutting measures to maintain a sound capital buffer in order to withstand any financial crisis. However, with numerous job losses, unemployment rate could worsen and put the economic recovery at stake.

Overall, until revenue generation revives, a worsening cost-to-income ratio will continue to force many more banks to reduce their costs through job cuts since they need to enhance profitability in order to boost capital ratios.

Nomura currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
 

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