Nomura's Ashley Laments Brexit Danger as He Faces European Slump

(Bloomberg) -- Steve Ashley, charged with turning around a slump at Nomura Holdings Inc.’s investment bank, faces one of his biggest challenges thousands of miles away from Japan.

Britain’s exit from the European Union threatens to create “two centers” for financial products on the continent, Ashley, head of wholesale and global markets at Nomura, said Monday in an interview with Bloomberg Television. This will add to banks’ costs and complexity of operations, threatening those that are already struggling to turn a profit.

“That’s a great concern of ours,” said Ashley. “Equally, the cost for not just ourselves but for every single European bank to have separate pools for capital and funding is actually very dangerous for many banks that are not in great financial health.”

Ashley, an eight-year veteran at Nomura, is trying to arrest a slump at one of the world’s biggest investment banks, particularly a European subsidiary that has struggled ever since it bought operations from Lehman Brothers Holdings Inc. in 2008. His challenge has been compounded by Brexit, which is forcing banks to create new subsidiaries on the continent and pushing some of the market’s plumbing away from London as well.

Nomura will move 50 to 100 people to Frankfurt and elsewhere on the continent after the U.K. leaves the EU, mirroring moves announced by rivals including BNP Paribas SA, Ashley said. Yet the lender will still have to contend with the dislocation of Europe’s financial infrastructure, he said.

Europe Moves

Ashley’s concerns follow the decision by CME Group Inc. to shift its $240-billion-a-day market for European short-term financing, the biggest in the region, from the U.K. capital to Amsterdam to avoid disruption. Another crucial London business under scrutiny is the so-called clearing of euro-denominated derivatives, which could trigger higher costs for banks if parts of it were moved to the continent. The biggest U.S. banks, meanwhile, are planning to shift about 250 billion euros ($283 billion) of balance-sheet assets to Frankfurt because of Brexit, Bloomberg reported Nov. 11.

“The city of London has always had the ability to adapt, evolve and survive so in that sense I’m not concerned,” said Ashley, who is based in the U.K. capital. “What I am concerned about is there essentially being two centers of liquidity” for euro-denominated products -- one in London and another on the continent, he said.

Nomura’s European business has lost money in four out of the past five quarters. While it has had to grapple with regulatory costs and negative interest rates along with Brexit, the unit has also faced internal problems such as management tumult, a failure to build up a base of long-term clients and an overreliance on risky trades, Bloomberg reported last month.

Ashley cut about 50 jobs in London earlier this year, including many of his most senior traders and managers. Chief Financial Officer Takumi Kitamura told reporters Oct. 31 that he intends to bring the European unit to “an appropriate size” and “achieve a balance in terms of manpower, resources and capital.”

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