Why did Daiwa’s European fixed-income new-issue wheel fall off in 1996? In a record year for new-issue volumes and secondary bond trading, Daiwa Europe has plummeted like a stone in the league tables finishing 19th, compared with seventh position in 1995. Had it not been for a World Bank issue late in the year targeted into Japan, Daiwa might even have finished behind Nikko Europe which would have been seen as a disaster at Daiwa’s HQ. “There would have been bodies floating all over Tokyo Bay,” comments a former Daiwa trader in London.
While the firm managed to pip Nikko and avoid total ignominy, Daiwa’s management will be holding an early postmortem. Will fingers be pointed at Alex Monnas, the former Hill Samuel director who has orchestrated Daiwa Europe’s debt capital markets, derivatives and treasury businesses since 1988? Probably not, as the intellectually formidable Monnas was promoted to deputy chief executive only in 1995 and is the highest-ranking European in London. Clearly Monnas is held in high esteem by the Daiwa hierarchy in Tokyo.
However, even Daiwa insiders are asking whether the firm has lost its appetite for the international capital markets. Only nine months ago the Daiwa bond machine in Europe ran as smoothly and reliably as a Swiss train. Monnas himself was not a recognized bond expert. He preferred derivatives and structured products and was considered to be a first-class risk manager.
Daiwa’s rising star in the international bond world was guided by Philip Porter, the veteran Euromarkets specialist who had done much to raise the company’s profile with international borrowers. Two of Porter’s ablest and closest colleagues were Paul Morganti, who ran the origination team, and Dennis Kelleher, the highly regarded head of syndicate.
With this powerful trio in place, Monnas could essentially leave the bond group on its own and concentrate on expanding other areas, particularly structured products and proprietary trading. Porter’s team would guard the bond gate and ensure that Daiwa made at least a respectable showing.
But then events started to go awry. Suddenly the team guarding the bond gate deserted. Morganti was the first to leave seduced away by Robert Gray’s HSBC Markets. Next to go was Porter himself. He jumped to the recently merged Tokyo-Mitsubishi International in London to head all global debt capital markets outside Japan. It was too good a chance to miss.
If Porter had felt fettered by Daiwa’s lack of urgency in the international bond business TMI, with its limited achievements so far, provided the ideal platform to build a new Japanese powerhouse. Given the size of the Tokyo-Mitsubishi balance sheet, no-one doubts that the bank has the resources to become a serious player eventually. In early December Kelleher completed the Daiwa rout by leaving to join Porter at TMI.
“The Daiwa Europe bond emperor has no clothes,” said observers after hearing the news of Kelleher’s departure. That may be unfair but Monnas’s fixed-income group is looking increasingly threadbare. The search for replacements is already being accelerated and Monnas may find opportunities in the early part of 1997 when bonuses have been paid and the Euromarkets’ annual game of musical chairs reaches a peak.
Overambitious aims
Some urgent repairs are needed if Monnas is to fulfil his goal of securing Daiwa firmly in the top 10 international fixed-income new-issue managers. However, that’s not nearly as silly as NatWest Markets’ proclaiming a similar ambition at least in 1995 Daiwa was right up there with CSFB and Deutsche Morgan Grenfell. But some of the competition is saying that the 1995 result was a fluke. “For Daiwa to have been up there with the gods was like winning the lottery,” says a former Merrill syndicate manager.
But does Daiwa Europe have a secret weapon? Are Monnas and Daiwa’s chairman in Europe, Yoshiyuki Takemoto, pinning their hopes on Robin Nydes, the inscrutable American who came from Bankers Trust and now heads the firm’s structured finance group? How did Nydes arrive at Daiwa and why was he hired? Was it true, as some Daiwa insiders suggest, that the firm was mesmerized by the tales of Simon Fry’s asset trading division at Nomura in London and that the order went out, “copy that act”? Certainly chairman Takemoto seems to have given Nydes a virtually free rein. Normally Daiwa is considered to be the most frugal payer of the four main Japanese securities houses but Nydes, clearly with Tokyo’s blessing, steamrollered his way through the firm’s normal compensation parameters. Indeed he has been on a spending spree that is the talk of the firm. His group now numbers around 30, including team hires from his alma mater Bankers Trust and from Credit Suisse Financial Products. “He has spent millions already and he’s still hiring,” says a leading executive recruiter.
Will Daiwa’s secret weapon in the form of the Nydes Group pay off? Has Daiwa deliberately de-emphasized its primary market activities to allocate more financial resources to the structured finance unit? Do the local Japanese senior managers understand the complex financial transactions in which the Nydes Group is involved or does Monnas monitor the risk himself? If Nydes is Daiwa’s new European great white hope, why is he only an executive director?
Nydes remains an enigma even within Daiwa. “He thinks he’s Christmas and Easter rolled into one,” says a former colleague. Others say that he is a difficult man to read. “He’s the sort of person with whom you can have half-a-dozen meetings and you suddenly realize that you know even less about him than you did after the first,” comments a former executive director at Bankers Trust.
But who cares as long as Nydes is quietly rolling tens of millions of dollars down to the bottom line like Simon Fry at Nomura. If that is the case Daiwa has no need to paper over its primary-market cracks. But is the money flowing through? At Daiwa no-one seems to know. The profits assuming that there are profits are not revealed within the firm.
“We saw lots of overhead costs but little else,” says a former Nydes contemporary. Probably Nydes is making even more money than Simon Fry’s elite squad at Nomura, but who knows. Let us wait until some year-end accounts are filed.
