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The British banker tasked with overhauling Nomura’s global investment operations after a $2.9bn hit from the collapse of Archegos has said his traders are finally closer to being able to go “max risk”.
Christopher Willcox told the Financial Times the “boring, foundational, basic stuff” done since he took over as head of Nomura’s trading, investment banking, and international wealth management businesses meant he was increasingly confident of taking bold, high-stakes bets.
“I wouldn’t say we’ve gone max risk yet, but what I would say to you is our ability to do that now is higher,” he said in an interview at the bank’s Tokyo headquarters last month.
“If I have a big client franchise and I have a steady flow of money that comes in the door over time and I know I’m not going to starve if I don’t take risk today, I can wait until I have 80 to 90 per cent conviction on a trade. I can also put more risk on that individual trade,” Willcox said.
Under chief executive Kentaro Okuda, Japan’s biggest brokerage and investment bank has been trying to shift towards stickier sources of revenue, particularly from wealth and asset management, to take advantage of Japanese savers reaching for yield as inflation returns to the country.
As part of that strategy, the bank this week said it had agreed to buy Macquarie’s US and European public asset management business for $1.8bn, its biggest deal since the 2008 purchase of Lehman Brothers’ Asian and European assets — something that put the bank on the global stage but mired management in years of troubled integration.
The wholesale business that Willcox now heads had progressively lost the trust of investors to avoid painful blow-ups, from insider trading scandals to the outsized hit from the meltdown of Bill Hwang’s family office Archegos in 2021.
Willcox, whose $12mn pay cheque last year was three times more than Okuda’s, was parachuted into the bank four years ago from JPMorgan Chase and promoted a year later to lead and reform the wholesale business.
Results have so far been encouraging. Nomura last year increased annual profits for the first time since Okuda took over, driven by a rebound in his wholesale business. The bank is due to report full-year earnings on Friday.
Willcox has replaced more than 500 people across the global markets business since taking over. Some employees were poached — including Nomura’s rates team in Europe — but many others were simply deemed not good enough.
“In London, which was our most challenged business, we turned over 25 per cent of the global markets workforce,” said Willcox. “A normal churn for these businesses is 5 to 10 per cent. It’s not easy to turn over 25 per cent.”
While the former rates trader expects an above-average turnover to continue, it will not be at that extreme level because if you “replace at 25 per cent a year, you’ve got a Trotskyite permanent revolution”.
Willcox has also moved to put in place a more global structure — where financial resources are not hoarded — and made sure that offices, from New York to Tokyo, are actually sharing key information about clients and risk.
“In a regional structure, you’re going to hang on to [financial resources] till death and deploy it into either riskier or lower returning things,” said Willcox.
Ensuring key lieutenants are rewarded for global performance eliminates “lazy risk taking, it eliminates you soaking up your financial resources into lower returning areas, say repo business when it could be deployed in say equity financing,” he added.
Willcox is also redressing the balance between salespeople and traders. Nomura had what Willcox guesses was the “lowest sales to trader ratio in the industry”, with traders outnumbering those in sales. Willcox has moved the bank to a ratio closer to 1.5 salespeople to every trader.
“People think investment banking is an art, but it’s a science. The more clients you talk to, the more often you talk to them, and the higher the quality of that interaction, the more money you will make,” he said.
Willcox admits it could take another crisis to truly tell if he has got the balance of risk in his reformed unit right, with another blow-up a near statistical certainty given the nature of the business.
“Investors will understand it if we have demonstrated enough consistency over a long enough period of time that we’ve gained their confidence that we’re competently running the business,” he said.
