While I am impressed by the progress that Citi has made since the autumn of 2008, I am still wondering what Nomura has achieved. In October 2008, Nomura bought the European and Asian operations of Lehman Brothers. At the time, I was sceptical because Nomura’s senior management agreed to guarantee Lehman employees the equivalent of the 2007 “high five”-era bonus pool. “Nomura has locked lucky Lehman staff into payments paid at the peak of the market,” I wrote. “I have only one word for this: ridiculous.” A source disagrees with my negative stance: “Nomura was in a strategic corner: they were trapped in Japan. They bought the Lehman operations for virtually nothing. If I criticize the Japanese for anything – it is that they are not involved enough in the investment banking business.“
Loyalty can rarely be bought and once the guarantees expired this spring, Lehman staff started deserting. Christian Meissner, Siggi Thorkelsson and Thomas Siegmund are some of the most senior defectors. It seems to me that the Japanese management, led by chief executive Kenichi Watanabe, panicked and decided to hand the keys of the palace over to the servants. In March, Jesse Bhattal, the former head of Lehman in Asia, was appointed as global head of Nomura’s wholesale business. I interpret this as an attempt to incentivize the Lehman boys to stay around. I wonder if more money has been offered to those dithering as to whether they should stay or go. A Nomura insider insists that the 2010 departures are insignificant when weighed against the 1,000 hires that Nomura has made in EMEA alone since the acquisition of the Lehman operations.
My faith in new Nomura was undermined when I spoke to a senior, former Lehman employee about developments at the firm. “Look,” said Mole. “For the Lehmanites, it’s not about creating a legacy. It’s an experiment which may or may not work.” The results so far have been indifferent – Nomura is a pimple at the bottom of most league tables. Year to date, Dealogic has it as number 33 in the European ECM league table, number 32 in European DCM and number 18 in the European M&A league table. The Asia Pacific (ex Japan) rankings are even more disappointing. Nomura insiders take pride in the fact that the firm is the number one equities broker on the London and Tokyo stock exchanges. But is this data significant when discussing the status and aspirations of a major investment bank?
Nomura’s profitability has been modest. It made a net profit of ¥67.8 billion ($720 million) for the year ending March 31 2010. Compare this with Citi, which reported net income of $4.4 billion merely for the first quarter of 2010. Unless the Nomura franchise improves, key individuals could be tainted. In other words, you can only keep taking the money for so long, eventually you have to deliver. Nomura might start to resemble the roach motel: you can check in but you can’t check out.
An interesting postscript to the dramas being enacted at Nomura was the phantom hiring of John Hyman, the respected former co-head of global capital markets at Morgan Stanley. In April, it was whispered that Hyman would resurface at Nomura in a similar role. This would have been a significant hire for Nomura. But then, a few weeks later, Reuters broke the story that Hyman would not be joining because of an issue with the UK regulator, the Financial Services Authority.
“Abigail,“ a mole grumbled. “Is it newsworthy that some bloke Nomura said was going to join is no longer turning up?” Mole has a point. Nevertheless, I think this story reflects badly on Nomura’s European management. I might be wrong but I assume that someone at or close to Nomura leaked the story to the press. Nomura is the only party that benefited from publicizing this dispiriting saga. It is not in Hyman’s interest for damaging details to circulate and the FSA categorically denied that they would leak such a thing: “We do not talk about individuals or firms,” an FSA spokesperson said firmly.
Might Hyman have fallen out of love with Nomura before crossing the threshold? Or were the lovebirds still cooing until discussions with the FSA cooled their ardour? In any event, if Nomura were tempted to make hapless Hyman look bad in order to make themselves look better, they should be ashamed. Any candidate who speaks in confidence to a potential employer should be able to count on the fact that such negotiations will remain far away from the public purview. If Hyman was betrayed in this regard, other candidates should be wary.
Hyman found himself caught up in a glare of publicity. This can be confusing and distressing unless you are used to it. Am I the only commentator to have noticed that BP’s head of group media, Andrew Gowers, is the same Andrew Gowers who was head of Lehman’s corporate communications in 2008 as the firm spiralled downwards into bankruptcy? Gowers, a former editor of the Financial Times, must have had enough of crisis management to last him a lifetime. Perhaps he should think about deserting the turbulent corporate world and returning to the peaceful pastures of journalistic endeavour?
More from Abigail:
Abigail Hofman: End of the Pru party
The demise of the Prudential deal together with inhospitable debt and equity markets implies that the second-quarter numbers for global investment banks will be bad.
Abigail Hofman: Progress at Citi
Vikram Pandit has taken Citi from a place where the institution was written off as a basket case to being a share beloved by star hedge fund managers and widely seen as a buy for widows’ and orphans’ pension pots.
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