By Nathan Layne and Lawrence White
TOKYO/HONG KONG, June 10 (Reuters) - Japan's stock tradingboom has turned long-suffering equities desks in Tokyo intoprofit drivers for global investment banks, with those thatresisted the urge to cut staff when the market was in thedoldrums doing the best.
While market share rankings are not publicly disclosed,Morgan Stanley MUFG Securities and Citigroup were amongthe banks interviewed by Reuters which said they had won alarger slice of the Tokyo market in recent months. Both put itdown to maintaining broad sales and research coverage even asvolumes dwindled through most of 2012.
Deutsche Bank and Barclays made some ofthe deepest job cuts, said Tokyo-based headhunters.
Deutsche said its market share had likely slipped but thatits profits were up significantly and expressed confidence amore focused strategy would work over the long term. A Barclaysspokesman said headcount reductions did not directly correlateto its ability to generate revenue, adding the bank wascommitted to and saw "great opportunities" in the Japaneseequities market.
The Nikkei average has tumbled 20 percent sincehitting a 5 1/2 year high in late May. Nonetheless, the Nikkeiis still up 24 percent since Dec. 26, when Prime Minister ShinzoAbe assumed office, accelerating a rush into Japanese stocks onhopes his economic policies would end deflation.
That wild ride has left lightly staffed Japan equities deskshandling huge volumes while their more heavily resourcedcounterparts in hubs such as Hong Kong deal with sluggishtrading.
Last month, the main board of the Tokyo Stock Exchange hadthe equivalent of $40 billion in average daily turnover versus$7.7 billion for Hong Kong. In May last year, it was $12 billionfor Tokyo and $9.54 billion for Hong Kong.
For some banks that has made Japan the most lucrativeequities market in the world, executives said. Tokyo's share ofglobal stock volumes has risen to more than 15 percent, from 7percent last year.
The upswing has placed renewed importance on traditionalresearch analysts and sales traders, an endangered species inTokyo over the past few years amid a shift to electronic tradingand waning interest in Japanese shares.
"It is the type of market where investors want to talk toa trader and understand why a stock is trading the way it is,"said Brendan O'Dea, head of Japanese equities at Citigroup.
HEADCOUNT REDUCTIONS
Foreign banks have been steadily shrinking their Japanequities business since the 2008 global financial crisis with amix of staff cuts and a consolidation of trading functions intoHong Kong and Singapore, a trend that gathered pace followingthe March 2011 earthquake and tsunami.
"There was no space, there was no volume and it was tooexpensive," said Angelo Corbetta, London-based head of Asianequities at Pioneer Investments which manages $207.7 billion inassets globally.
Amid dwindling stock volumes, front-office equitiesheadcount at the top 10 global investment banks in Tokyo shrankby an additional 16 percent last year to 939 staff, according tofinancial industry research firm Coalition.
In one of the industry's most dramatic restructurings,Deutsche roughly halved its equities workforce to around 60 or70, people familiar with the matter said. Deutsche would notconfirm its staffing figures.
The number of Deutsche analysts publishing reports onJapanese equities fell to 10 as of March, down from 23 a yearearlier, according to Thomson Reuters Starmine data. Barclaysmade a similarly sized cut to coverage, with its analystsdropping to 14 from 23.
Tamio Honma, head of equities at Deutsche in Tokyo, said alarge portion of its cuts were in "high-touch" sales and tradingpositions targeting Japanese institutional clients, an areawhere local brokers have a home-field advantage. Those clientsare being targeted with a lower cost model centred on executionand research.
"The aim of what we did last year was to reduce our costbase so that we can have a sustainable business model inJapanese equities, even if last year's market conditionscontinued," Honma said.
Honma said the equities division had met its initial 2013revenue targets in the first few months of the year, and that hewas hiring another salesperson for international investors, ahigh-margin client base it continues to serve with traditionalresearch sales and sales trading staff.
Unlike local brokerages such as Nomura Holdings andDaiwa Securities Group, foreign banks are not able totap Japan's large base of retail investors because they lacktheir large networks of brokerage branches and salespeople.Retail investors have accounted for about a quarter of stocktrading this year.
"Global banks are looking at ways to capture the high marginbusiness from international investors. Domestic funds have a lotof assets under management but they don't trade as much and arehigh maintenance: you need an army of corporate access andresearch people to service them," said Paul Guevara, a recruiterfor New Millennium Group in Tokyo.
Barclays (BARC)
