Nomura reviews scale of operations in Hong Kong

Nomura is “seriously” examining its Greater China strategy and the scale of its operations in Hong Kong as relations between Beijing and the former British colony deteriorate, according to the chief executive of Japan’s largest investment bank.

Options under discussion, said Kentaro Okuda, include bolstering the size of Nomura’s majority-owned joint venture in mainland China — a Shanghai-based brokerage and asset management business that secured the necessary licences in 2019 and began operations in December.

In an interview with the Financial Times, Mr Okuda, the former head of investment banking who became chief executive of Nomura in April, said Nomura’s roughly 1,000-person Hong Kong operations remained its most critical Asian hub outside Japan, but the situation now was “not the same as it used to be”. 

His comments followed China’s approval last week of a plan to impose a national security law on Hong Kong and a retaliatory threat by the US to revoke the Asia financial hub’s special trade privileges, as Washington no longer deems the special administrative region to have the requisite autonomy from Beijing. 

Although Mr Okuda said there were no plans to relocate staff from Hong Kong to elsewhere in the region, he noted that Nomura was actively expanding its operations in Singapore. “Because of the political situation, we are seriously looking at the size of the Hong Kong [operations] and others,” he said.

In common with industry peers, Nomura has made no decisions yet. Other large banks, asset managers and companies outside the financial sector have said that for now it makes sense to remain in Hong Kong, given the absence of demonstrably better alternatives. Many senior executives have described their intention to “stomach” Beijing’s new security law.

A survey on Wednesday by the American Chamber of Commerce showed that 60 per cent of the US companies that responded think the national security law will hurt their business operations in Hong Kong, but 70 per cent said they had no plans to relocate.

Swire and Jardine Matheson, two of the former British colony’s oldest trading houses, have publicly supported the law, with Jardine advertising its position in a Hong Kong newspaper seen as favourable to Beijing on Wednesday.

In a statement last week, a Swire spokesman said the enactment of national security legislation “will be beneficial for the long-term future of Hong Kong as a world-leading business and financial centre”. Last year, Swire’s airline Cathay Pacific was caught between China and Hong Kong after some of its staff in the territory were involved in pro-democracy protests.

Mr Okuda stressed that while the Greater China business remained critically important to Nomura, the political situation had to be factored in. As the bank reviewed its strategy for the region, he said, one option could involve expansion of Nomura Orient, the mainland joint venture it set up last year with Orient International and Shanghai Huangpu Investment.

That business was established in response to efforts by Beijing over recent years to convince the global financial industry that its domestic markets were continuing to open up to foreign participation. Nomura’s existing expansion plan for the China joint venture is to increase staff to about 500 people by 2023.

Some political analysts have deemed that campaign part of a grander scheme by the Chinese government to chip away at the relevance of Hong Kong. Nomura’s swift application to form a majority owned joint venture in mainland China last year ran in parallel with similar moves by JPMorgan, UBS and Goldman Sachs.

Mr Okuda has used his first two months as head of Nomura to set out a number of strategic shifts he believes necessary to make the bank more competitive. At an investor event last month, he unveiled plans to broaden Nomura’s product portfolio with a new focus on private equity and private debt financing.

Nomura’s deliberations over its China strategy come as the financial industry wrestles with the impact of coronavirus and the longer-term fallout for investment flows. The bank’s performance in the first three months of 2020 illustrated the effect of the pandemic, with higher trading revenues offset by mark-to-market losses on credit derivatives.