Mizuho’s investment bank weighs cost cuts

Brokerage firm mulls relocating its back-office

“Europe is a tough market and it will probably be difficult for us to achieve profit in the region before the current fiscal year ends.”

Yoshiro Hamamoto

TOKYO: Mizuho Financial Group Inc’s investment banking arm is reviewing ways to cut costs in Europe as it seeks to turn around 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 Co, said in an interview.

“We need to take steps to rightsize our expenses, while at the same time working to maximise our revenue.”

Mizuho’s brokerage, which has lost money in Europe for four 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 United States, 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 building out the derivatives business in Europe to help 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 Inc is working to diversify its European business after five consecutive quarters of losses, while Daiwa Securities Group Inc said last year it would move part of its back-office operations in London to Japan.

Mizuho most recently overhauled leadership at the rate-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 two years ago. The firm also does equity 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 March 31.”

He added that he is also reviewing investment in the company’s information technology systems.

Across Europe, investment banks are facing dim prospects, though credit trading has proved a bright spot.

Last month, Deutsche Bank AG lowered the outlook for its investment bank despite beating forecasts in its trading arm, while Credit Suisse Group AG said it’s scaling back its investment bank in the face of mounting losses.

Mizuho Securities posted 4.1 billion yen (Us$31mil or Rm138.4mil)) in pre-tax losses in the quarter ended June 30, the largest in more than two years, weighed down by uncertainties over rising inflation and Russia’s invasion of Ukraine, according to filings.