Nomura deputy president Takumi Shibata is said to be the brains behind the Lehman acquisition
The bank beat Barclays and Standard Chartered in the bidding for Lehman’s Asian and EMEA units on the strength of its proposal to take on all of the US firm’s employees. In Asia-Pacific, Nomura will take on 3,000 Lehman employees across 11 offices in eight countries: it is this human capital that the Japanese firm is interested in, and its ability to retain and successfully deploy that capital will decide the fate of its attempt to build an Asia-based global investment banking firm.
Nomura is regarded as the dominant (indeed the only) independent domestic investment bank inside Japan, and as a minnow outside the country. League tables from Dealogic show that Nomura ranked 17th in Asia-Pacific M&A for the financial year ended March 2008, with deals worth a total of $25.1 billion. Remove the $23.8 billion of that total that came from Japan-based deals, however, and the total slips to $1.3 billion — roughly 70th place on the league table. Lehman Brothers placed 12th in the same period, with $29 billion-worth of deals, much of it from ex-Japan operations including the $14 billion Chinalco/Rio Tinto transaction. A combined Lehman and Nomura would have worked on Asia-Pacific deals with a total value of $55 billion in M&A and $13 billion in equity capital markets, good for eighth and seventh place respectively.
So is the new Nomura a threat to the dominant investment banks in the Asia-Pacific region? The challenge will be for Nomura to integrate and retain the top talent from its new acquisition, something that Japanese firms have always found difficult because of differing ideas over pay structures, the autonomy afforded to local managers and other key cultural issues.
"Everyone says that the compensation issue is important," says Syed Ehsan, an analyst at Fitch Ratings who covers Nomura, "and it’s true that if they want to keep the top bankers in London and Hong Kong they will have to pay them market rates. On the plus side the deputy president [Takumi] Shibata, who is said to be the brains behind this acquisition, is a very international guy and very well regarded internally."
Figures for Lehman Brothers Japan show that the unit had net operating revenues of ¥90 billion ($847 million) for financial 2008, and that "compensation expense" (pay) accounted for ¥40 billion of the firm’s ¥78 billion expenses for the year.
"My guess is that the corresponding ratio of compensation to total expenses would be much lower at Nomura," says Ehsan, "even though they are among the better-paying Japanese financial institutions."
"Given that the scale of the acquisition is not especially
Syed Ehsan, Fitch Ratings
Bankers at foreign firms in Tokyo are divided on whether Nomura will be able to solve the problem of integrating Lehman employees used to the forthright US style of investment banking into the more consensus-driven Japanese banking culture, although several note that Nomura is among the more internationally minded and aggressive Japanese financial institutions. Nobody is sure whether this venture will succeed: one banker calls the deal a "CEO ego trip that looks sure to fail," while a debt capital markets banker at a different foreign investment bank notes that Nomura "bought some good bankers at a good price" and did well to beat off rival bids from Barclays and Standard Chartered.
Nomura has announced that it will rebrand Lehman’s offices around Asia under its own name, removing all traces of the Lehman name from global investment banking. The Japanese bank aims to succeed in finally becoming a force in Asia, and the rate at which it is able to hold on to ex-Lehman bankers in the coming months will suggest whether that aim is likely to be realized.
|Top M&A transactions by the Finance Sector in the Asia-Pacific into the European and North American Finance Sector 2006 to 2008 YTD|
|Announcement date||Target||Target nationality||Acquiror||Acquiror nationality||Deal Value $ (m)|
|24 Dec 07||Merrill Lynch (13%)||United States||Temasek; Davis Selected Advisors||Singapore||6,200|
|27 Mar 06||Standard Chartered (11.55%)||United Kingdom||Temasek||Singapore||4,045|
|12 Aug 08||UnionBanCal (34.6%)||United States||Mitsubishi UFJ Financial Group||Japan||3,511|
|28 Jul 08||Merrill Lynch (Stake%)||United States||Temasek||Singapore||3,400|
|21 May 07||Blackstone Group (10%)||United States||China Investment Corp||China||3,000|
|23 Jul 07||Barclays (2.64%)||United Kingdom||China Development Bank||China||2,981|
|23 Jul 07||Barclays (1.77%)||United Kingdom||Temasek||Singapore||2,005|
|11 Mar 08||Sintonia (14.3%)||Italy||Government of Singapore Investment Corp||Singapore||1,537|
|7 Mar 07||Standard Chartered (3.74%)||United Kingdom||Temasek||Singapore||1,416|
|2 Nov 06||Instinet Corp||United States||Nomura Holdings Inc||Japan||1,200|
|25 Jun 08||Barclays (2.07407%)||United Kingdom||Sumitomo Mitsui Banking Corp||Japan||983|
|19 Dec 06||Fortress Investment Group (15%)||United States||Nomura||Japan||888|
|29 Nov 07||Great Western Bank||United States||National Australia Bank||Australia||798|
|19 Mar 08||Banco Popular Espanol (3.3%)||Spain||Private Investor (Indian private investor, Ram Bhavnani)||India||695|
|17 Mar 08||Bank CenterCredit AO (23%)||Kazakhstan||Kookmin Bank||South Korea||497|
|23 Sep 08||Lehman Brothers (European equities and investment banking businesses)*||United Kingdom||Nomura||Japan||N/A|
|*Note:Deal value is unknown and thus, does not rank in the top 15.|