Nikko Salomon Smith Barney is a rare creature. It’s a joint venture that can only be described as a success. And it has the other banks in Japan green with envy. In equity underwriting it’s at the top of the pile, and it’s also moving up the tables in the M&A business. Thomson’s league table for advisers for Japan places it fourth, behind the usual suspects of Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter. Morgan Stanley is now looking over its shoulder because in 2000, Nikko Salomon Smith Barney was only $500,000 behind. And it was involved in more transactions: 23 compared with MSDW’s 18.
In both the equity capital markets and the M&A side, the Japanese name Nikko has undoubtedly brought benefits. “The Nikko relationship has helped absolutely,” says David Hatt, managing director in charge of equity capital markets. “Nikko has given us a whole new dimension in terms of capability and access to corporate Japan.”
SSB acquired the capability and access because Nikko quite simply was in trouble. And Sandy Weill, chairman and chief executive officer of Citigroup, who is described by one banking competitor as being the best bottom fisher in the universe, picked up a powerful franchise and a client list that would have taken years to build.
But is the bank so successful simply because it is primarily a Japanese bank? Nikko owns 51% of the joint venture, and SSB owns the other 49%. “We are Japanese. We’re 51% owned by Japanese and we sell our Japanese credentials,” says Hatt, the gaijin. He goes on to describe the bank as a Japanese bank with global distribution.
Toru Mio, the Japanese managing director of the bank’s mergers and acquisition department, agrees that the Nikko brand has helped the firm get in on many of the purely domestic M&A transactions. “Obviously it has helped having Nikko. But my answer as to whether we are a domestic bank or foreign bank, I would have to say we are a foreign bank. Even though we are owned 51% by Nikko, we are not a Japanese bank.” He explains: “Nikko agreed that this entity would be operated according to the Citicorp model.”
Mio claims that the firm’s deal universe in regard to M&A is wider than its competitors. It’s a claim that, not surprisingly, the other banks flatly deny. “NSSB has no real advantage when pitching for M&A business,” says one irritated banker. “They may be better than an SSB stand-alone, but they have no real advantage vis-à-vis Goldman, Merrill, and Morgan Stanley. Clients want industry expertise, it’s no longer just about relationships.”
Although most bankers acknowledge NSSB’s success, they are just as quick to take a swipe at it. Many point out that though both partners are performing well in the honeymoon suite the joint venture will – they hope – undoubtedly follow the path of so many before it ends in tears and recriminations.
One banker does enthuse however: “If marketed correctly, NSSB will be a very powerful mixture and it will have access to a quarter of the corporate market.” Deep breath. And swipe: “But at the moment it is neither fish nor fowl.”
The market now, says a banker at a European house, has definitely helped NSSB, but, he says: “With the threat of the economy double-dipping, and conditions possibly getting nasty, we are going to see the cultural issues come to the surface. That will affect all their businesses. Already the résumés are gushing out and the headhunters are calling me every day. The bonuses have been paid and they want out.”
Nikko Salomon Smith Barney is obviously seen as a threat by all banks, be they foreign or domestic. One managing director at a Japanese bank also can’t help himself taking a pot shot at the NSSB machine. “They have only been involved in a couple of deals. OK, they have been big and you could say bigger is better, but client-base stability is more important. They also have so many internal conflicts to deal with.”
NSSB hasn’t just been involved in a couple of large deals. On the equity side, it has played roles in the largest five deals in the Japanese market over the past three years. And of the ¥5 trillion ($43 billion) that was issued in the market last year, it was either lead or joint lead in over half. In 2000 it topped the Japanese equity league tables. And Nomura was pushed again into a disconsolate second.
Defence of the firm comes from a surprising quarter. Thierry Porté, president of Morgan Stanley Dean Witter, Japan says: “If people are saying such things it is coming from their own envy. I think frankly, in a downturn, things get nasty for everybody. It doesn’t matter what your capital structure is.”
So would MSDW be tempted to enter into a joint venture? “We’d never do a transaction in which we would be left with 49%. But we have looked, and nothing has yet demonstrated itself as an enormous opportunity.”
Suggestions that cultural problems are brewing are dismissed by Hatt. “It’s all wishful thinking on the part of competitors. In an organization of more than two people, irrespective of culture, there will always be differences of opinion.”
Whatever the other bankers are saying, this fish-nor-fowl bank is one to watch.
