The abrupt exit of Jasjit Bhattal, the highest-ranking ex-Lehman executive at Nomura Holdings, marks a crucial juncture for Japan's top brokerage as it decides whether to replace him with an experienced global banker to foster expansion, or with an in-house local to focus on the home market.
The loss of Bhattal, and global markets head Tarun Jotwani, another Lehman alumnus, sets the scene for a succession battle at Nomura , which had hoped its acquisition of Lehman Brothers' European and Asian operations after the storied Wall Street firm collapsed in 2008 would finally bring it global presence.
Bhattal's chosen successor, assuming his role is replaced in its current form, will be seen by many in the industry as a sign of where Nomura sees its future.
If the struggling financial house opts for a candidate with foreign experience and a track record of managing a successful investment banking unit, those global ambitions could remain alive. Picking a Japanese manager with little overseas expertise may signal those aspirations have cooled amid weak results and worsening global conditions for the investment banking industry.
Sources inside Nomura predict any direct replacement for Bhattal would be seen internally as a strong candidate eventually to replace CEO Kenichi Watanabe.
Takumi Shibata, the architect of the Lehman acquisition and Nomura's chief operating officer, has taken over Bhattal's duties while the search for a replacement is on, and some inside the firm say that could become a permanent arrangement.
Others say that stretching Shibata thin is not the solution, and replacing Bhattal swiftly is key to properly managing the non-Japan side of the bank.
Foremost among the Japanese candidates, according to three sources at the brokerage, are Hiromasa Yamazaki, who oversees the CEO's office, and Hiroyuki Suzuki, co-head of investment banking. The main strikes against them, the sources say, is a respective lack of experience in investment banking and markets.
The sources did not want to be identified as they are not authorised to speak to the media.
Other candidates for the role include two of the remaining, dwindling band of senior Lehman bankers at Nomura: Asia Pacific CEO Philip Lynch, and William Vereker, joint head of investment banking.
"The key question now is will Lynch, Bhattal's close friend, remain? If not, for me, that's the end (for Nomura's Asia Pacific ambitions), with too much intellectual capital lost," said a former colleague of Bhattal's who asked not to be named as he is not authorised to speak publicly on the matter.
Contacted by Reuters on his mobile phone, Lynch declined to comment on his plans.
While Vereker is based in Europe, there is a precedent for bringing talent back to Japan. When Nomura sought a new investment banking head for Asia following Glenn Schiffman's transfer to the United States, it pulled Patrick Schmitz-Morkramer out of Germany to co-head the business with Colin Banfield, who is now at Citigroup.
In addition to deciding whether to appoint a direct replacement for Bhattal, Nomura will need to pick a new head of fixed income as it is to split the global markets division that Jotwani headed into equities and fixed income.
The two co-heads of global equities, Naoki Matsuba and Benoit Savoret, will remain, but Nomura will need a new fixed income head as Jotwani held that title in addition to leading the global markets division.
While experienced bankers, Bhattal and Jotwani were seen by some Nomura insiders as overly expensive, and some query whether a direct replacement is necessary.
"The resignation of Jessie and Tarun was like clearing a cloud over us. Simply because they were expensive," said one Nomura executive in Tokyo, who did not want to be named because of the sensitivity of the matter.
While Bhattal and Jotwani's compensation were not disclosed by Nomura, Asia bank CEOs and senior executives can earn $5-$10 million a year, according to Asia headhunters.
The Nomura executive also suggested the departures of Bhattal and Jotwani symbolise the failure of the Lehman acquisition. "I think we should have bought all of Lehman, the U.S., Europe and Asia, but we didn't buy the Americas. That was a mistake.
"The size of the fee pool in the United States is very big, and I think the European investment banking business can be successful with a combination of U.S. and European operations,' the executive added.
As part of the largest bankruptcy in U.S. history, Lehman's U.S. business was bought by Barclays.
India-born Bhattal, 55, was the former Asia Pacific CEO for Lehman and helped negotiate the sale to Nomura. A seasoned international banker, he was a key legacy Lehman figure who played a major role in pushing Nomura beyond the Japanese market, where it is the undisputed No. 1 investment bank.
Bhattal, who according to one former Lehman colleague is likely to now join an Indonesia-focused private equity venture, was chief executive of Nomura's wholesale division, which posted a 73 billion yen pre-tax loss in the July-September quarter, hit like other global banks by the downturn in financial markets and a slowdown in dealmaking.
His early departure has been attributed by some to a clash over Nomura's $1.2 billion cost-cutting drive launched in November that mainly targeted the wholesale operations and stepped up a restructuring amid the threat of a possible credit rating downgrade.
While Nomura succeeded in certain areas and continued as the dominant investment bank in Japan, its league table status outside Japan never really showed it gaining much ground on the major banks.
It ranked first in Japanese equity capital markets in 2011, working on $6.8 billion worth of deals, but outside its home base it ranked just 32nd in Asia Pacific, according to Thomson Reuters data.
The wholesale division's woes pushed Nomura to a group net loss of 46.1 billion yen in July-September, its first quarterly loss in more than two years. Bhattal told Reuters at the time that conditions in the investment banking industry were as tough as during the 2008 financial crisis.
According to Thomson Reuters SmartEstimate, which gives more weighting to higher-ranked analysts' forecasts, Nomura is expected to post a net loss of almost 14 billion yen for the year to end-March, almost double the mean forecast of analysts covering the stock.
Nomura's stock has lost three-quarters of its value since the Lehman deal, dropping its price-to-book value below 0.5 and triggering Japanese media to speculate that it could become a takeover target of one of the big Japanese commercial banks.
The company's shares rose 3.2 percent on Wednesday to a 4-week closing high of 259 yen.
The earnings downturn prompted Moody's Investors Service to place Nomura's Baa2 debt rating under review for possible downgrade. It is currently two notches above speculative grade.