Visitors to the London HQ of giant Japanese bank Nomura can walk along the north bank of the Thames past the huge Nomura banner, into the Nomura-labelled reception, hop in a lift – and then emerge in the office of Vocalink, a payments group.
That is because Nomura has been shedding staff hand over fist in recent years, leaving several former trading floors vacant.
With no prospect of ever again filling its imposing European headquarters the bank has found tenants to take the space.
This month Nomura revealed it will chop another 500 to 600 staff in Europe, largely in London.
The bank’s case is particularly stark as it bought chunks of Lehman Brothers in the financial crisis with the aim of becoming a global giant.
Such grand dreams have not come to fruition, though Nomura will still have almost 3,000 staff in Europe and most of them will be based in London.
But the Japanese banking giant is not alone. The global investment banking sector is shrinking as tighter regulations plus intense competition means banks are struggling to turn sustainable profits.
Another stake – the US business – in Lehman Brothers’ operations was bought up by Barclays in 2008 as it sought to expand its US investment banking arm.
That investment has been slightly more successful, however, with the British bank still hiring more staff in New York. But at the same time, the bank is sacking thousands of workers in Asia, cutting back in Brazil and Russia and is selling much of its holdings in Africa.
Now it wants to be a “transatlantic bank”. Such is the plight of the would-be global investment bank. In the immediate aftermath of the financial crisis many investment bankers hoped that had happened to the sector – with the loss of age-old names like Lehman and Bear Stearns – was simply a cyclical downturn.
Pay might have fallen and jobs might have been lost, but they would return when the flow of deals picked up. Not so this time. Despite a surge in deal volumes in 2014 but it petered out quickly, while trading revenues barely recovered at all.
“It is getting to the stage where this looks more structural than cyclical,” says Shailesh Raikundlia, an analyst at Haitong, a brokerage which itself is in the process of reviewing staff numbers in London.
“The fact is that all the investment banks have been slow to react. It is pretty clear regulators are trying to curtail investment banking. Given most banks are struggling to make their cost of equity in investment banking and in global markets, so costs have to come out.”
In part this is still a hangover from the boom years before the financial crisis. Investment banks are typically made up of two divisions – trading and advisory. The theory is that when markets are stable the advisory arm does well as companies want to sell shares or float on the stock market, for which they needs investment banks’ help.
In choppy markets, clients need the investment bank’s trading services. In the years before the crash the markets arms boomed, with proprietary trading desks trading on banks’ behalf as well as for clients, and the investment banks became imbalanced.
The current cuts are coming in part because the banks want to restore that balance, but more importantly because regulators do.
First, banks have to hold more capital against their trading books – officials do not want banks sitting on large volumes of shares and bonds which could cause losses if the market tumbles. It might be sensible policy, but it makes trading expensive. Second, regulators have banned banks from prop trading.
The idea is that the practice is both risky and not the job of banks, who should be acting as an intermediary between borrowers and savers, buyers and sellers, rather than betting on their own account.
The scale of the crunch in revenues is brutally clear. In the final quarter of 2015 debt trading revenues at Barclays, Credit Suisse, Deutsche Bank and UBS were down to just 20pc of their level at the start of 2011. Such sustained low levels were the final straw for banks which had hoped to tough it out and wait for the next upturn.