Is Nomura a Sinking Ship?
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I don't think it is necessarily. I think by the ever changing shift in M&A (declining # of transactions globally, but esp. in the US), it's going to naturally be tougher for banks who rely on like you said, Cross Border acquisitions and advisory. It's why you see banks like Mizuho, SocGen, and then even Europe giants w/ large US presence like Deutsche, UBS, even CS are starting to downsize/transition to another facet of their business (PWM, commercial banking, etc.)
I know an MD at Nomura who is head of Cross Border transactions (not for Asia, but a different part of the world). He's said that there's more of a just a natural slowdown in terms of the volume of acquisitions. That being said, this decline really will hurt the banks that aren't seeing the volume of deals to begin with. I don't think Nomura in particular is going to be the firm that's hit the hardest primarily because their US presence wasn't even that huge to begin with (i.e. they don't have a whole lot to lose in terms of their US deal volume).
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From my own experience, I think it truly depends on the platform, ESPECIALLY when it's Cross Border type. Doing something as simple as a private placement can be multiples more difficult when dealing w/ companies incorporated or domiciled in different countries. Typically it won't be the bankers who are the reason behind execution; while they may play a part in certain details on whether a deal gets executed or not, typically the platform (stuff like due diligence, laws, mandates, all the filings and documents, etc). Having worked in several Cross Border transactions across several products (M&A, PP's, IPO's, debt financings), I can definitely attest to the exasperating little details that can complicate a deal. That being said, these massive banks do have lawyers and ops people constantly working to try and smooth out those issues, albeit while those deals are just naturally more difficult to close.
From what I've heard, they've cut a lot of jobs in their AEJ equities groups. I don't know what this means for the future of their firm (esp. cause it's HQ'ed in Asia, lol).
Again, take my input with a grain of salt. I don't work at Nomura, but I do know certain things about their culture and dealings (as much as someone on the outside could gather). I don't currently work there, but I do have experience in Cross Border transactions with a different firm so I can attest to similar situations that Nomura may face on a smaller level.
Don't have any inside sources, but they are picking up hiring for what that's worth:
http://www.hitc.com/en-gb/2016/08/22/nomura-to-start-hiring-again-after…
The Lehmanization of Nomura (Originally Posted: 10/04/2010)
Those with a fondness for Wall Street folklore will one day look back at this marriage of convenience and laugh. Maybe they will laugh at its absurdity and inescapable demise. Maybe they will laugh at how two ugly ducklings became the belles of ball. Either way, the "Lehmanization of Nomura" presents a very interesting situation with the potential for good, bad and ugly results.
After Barclays gobbled up Lehman 3,000 employees were let go. Many were from Lehman and many went to Nomura. In addition Nomura picked up Lehman's international ops adding to their European and Asian presence. Today, when almost all the big banks are starting to slow new hires, Nomura's adding to their plate like Kobayashi at Coney Island.
For those whose memories don't go back that far, Nomura's always sort-of been the chess club kid who desperately wanted a seat at the cool table. The bulge brackets of Wall Street's heyday scoffed upon what they looked as an invading also-ran. This may actually blend well with Lehmanites who were also tutored in the us vs. the world mold of Dick Fuld's approach to banking.
Two potential issues are actually flip-sides of the same coin:
1) Will Nomura be capable/willing to provide the sizeable bonuses American bankers have grown accustomed to?
2) Is sending guys with some pretty regrettable risk experience into such a scenario a smart play?
With all of the fuss around Fuld and the public lynch puppet he has become, we quickly forget that many anonymous Lehman guys were the one's out there snorkling in toxic waste puddles and playing three-card with the repo man.
Besides Lehman, Nomura has poached talent from the likes of UBS and Deutsche Bank amongst others in attempts to bolster U.S. operations. Expansion attempts during times when competitors contract can result in significant growth. They can also lead to spectacular failure. At least the ex-Lehman guys can say they've been through a lot worse. League table statistics certainly warrant the expansion team treatment Nomura often gets from the Wall Street establishment. Keep in mind, however, that the Tampa Bay Devil Rays just took the AL East and may be playing in another World Series soon.
What goes on long term remains to be seen. If you're looking for a place to catch on, Nomura may be your smartest play today.
Lehman had a team culture of us vs. them and swung a little nerdier than most banks- a throwback to the pre-AMEX Peterson days- but at the end of the day, it was still an aggressive Wall Street firm that could make tough decisions.
Nomura is a lot more reserved. I'm not saying they aren't going to pull it off, but a Wall Street firm and a conservative Japanese bank mix like oil and water. The question is whether they will mix like a nice Ginger dressing or like an oil spill.
The markets have been moving decidedly nerdier over the past ten years, and I expect the move to continue. That means more quants, more programmers, and more research guys gaining more control over the decision making process. And that tends to be the people I've been hearing about getting hired into nice spots at Nomura. Really really smart, but more quiet guys. They've seen how it's done and I think they're ready to pull it off, but they never had a chance when other folks at Lehman were a lot more aggressive.
I think they can make this work. At the end of the day, when it comes to the markets, competence really trumps aggressiveness.
It's the old IQ vs. EQ argument. Do you want the guy who can calculate risk or the one who has the stomach for it. Not that they are necessarily mutually exclusive. I do think the move to an all-quant-all-the-time industry is in some ways a lot more risky. Both beasts suffer from different types of avarice, in my experience aggressive guys can be easier to reason with than a numbers guy who worship models of the linear sort.
Could it work around the other way; the Nomura-ization of former Lehman employees.
I would think it to be a risky move for Nomura to change from the Japanese cultural conservative design it is known for to that of a more Wall Street-esque and cut-throat setting based on a few thousand Lehman hires.
It is no doubt that the experience of the old Lehman employees would offer a flavor of Americanization to the company but would it really have a concrete influence?
One thing I would also consider is the employee retention rate of the Lehman hires. The culture clash and differences of the two firms seems to have already caused some defections among the old Lehman employees. Also, it seems that Normura may hold some business practices that may be viewed as archaic in the eyes of the average American professional, which could drive employees away.
(Been following your blog for a while now and decided I'd finally sign up and make a post)
Welcome aboard James, good to have you. Thoughtful comments are always appreciated and yoou raise some valid points. A big problem that I see for Nomura is that they are trying to take advantage of an open void get a foothold on Wall Street. This sort of action inherently requires risk, (as you pointed out) not something that is known to be their modus operandi.
Lehman was always a strong bond shop and Nomura's recent climb up the tables reflects some good work by the new blood. Are they really willing to take that to the inevitable next step of higher leverage and more complex hedging methods? I'm not sure.
If there is one thing that we've learned from the post-bailout era is that in spite of all the big talk and public relations promises, it is a business-as-usual approach from most banks.
Why should we expect Nomura to be any different?
I agree that an "all-quant-all-the-time industry" would add risk to the markets. When I read the posts about how quants will have more influence in Wall Street, I immediately thought about LTCM. In Buffett's bio, I recall reading about how he said something along the lines of, "This is what happens when you have a group of people with an average IQ of 160" (referring to the LTCM crash). Is it even possible to find some intrinsic value for risk? What would happen if the majority of quant traders, who hypothetically dominate market movements, miscalculate this risk? Obviously crashes can happen, with or without quants, but a market dependent on formulas created by people sounds really unstable.
As for Nomura, they're clearly making big changes. From my understanding, until several years ago, they were known to be a brokerage that focused more on the retail side in Japan (while generating some revenues from wholesale globally) but now they've been deviating away from this and focusing on becoming a global investment bank. The company also brought in non-Japanese people on their board, so they're clearly making an effort to change their business model. I'd say that the company responded pretty quickly to LEH's bankruptcy by taking the risk to acquire the European and Asian operations. All this may sound risky but I think to continue doing what it once did would pose even a bigger risk for an investment bank that's headquartered in a country with such a relatively small domestic demand for securities in general.
At the end of the day, there are both qualitative and quantitative aspects to the markets. But most of the innovation over the past 800 years- since Venetian bankers invented accounting and borrowed negative numbers from the Arabs (and ultimately India) to make the books balance- has been on the quantitative front. 100 years ago, business students learned accounting, but dividend yields and ROI were just silly fads that, as proven by the panic of 1907, were very dangerous. (Meanwhile, engineering students were stopping at advanced algebra- the basic mathematical building block for ROI, PV, and other components of modern portfolio pricing theory- in their studies back then.)
Today, engineers and quants are studying differential equations, calculus-based probability, and stochastic calculus, and those are also what "caused" the financial meltdown. And EVERYONE is using concepts behind stuff like dividend yield and CAPM- not just accounting. In all likelihood, stochastic calculus will be required material for finance majors- or people who want to be involved with the markets- in 50 years, in the same way that the markets of the 1800s and early 1900s moved beyond basic accounting.
The real problem here- as was the case in 1907 and 1929, is that guys who didn't understand the models were the ones who were really calling the shots. The quant told them that an asset appeared "undervalued", so they bought it on 30x leverage without covering all of the bases. The quant would have known better to do that, but not a guy who doesn't understand the model and the underlying, big-picture risk.
I will say that you don't have to be smart to be competent at what you do. But the stereotypical aggressive fast-talking people with brilliant ideas are rarely nerds- and often don't understand what they're doing. They simply have nerds working for them. And the bottom line is that the guy who comes up with the trade ideas- and the trading model- needs to be the person who's actually executing if the alternative is to have someone who largely doesn't know what's going on in charge.
In 50 years, you'll still be able to be a trader if you started as an English major, but you'd better know CS Algorithms and Real Analysis like the back of your hand- just like you need to be able to learn PV/FV today.
Honestly, these days, stomach-for-risk vs. calculate-risk isn't where you start. You don't want the guy who can calculate it or can stomach it-you first want someone who can just UNDERSTAND it.If you need to find someone to slay a dragon, you don't want a guy who can calculate the dragon's height. You don't want a guy who's ready to go out there and kill whatever it is- be it a bull or a bear or a rabbit. (Especially after several of those guys got themselves killed on past missions) You want a guy who knows that it's a red dragon that breathes fire and has a huge tail and really understands what he's up against.
These days, that takes a lot of quantitative analytical strength- the ability to take a look at a situation and quickly evaluate it on about 60 dimensions. The fact that leverage has made the dragon four or five times bigger over the past 35 years hasn't helped things.
Maybe the guy who is capable of understanding the whole situation- after several other folks have died in the process- is wise enough to fight smaller dragons causing more trouble and let the big dragons rest, even if that means smaller victories for the kingdom.
Nomura grabbed the best of Lehman. Lehman was loaded with talent. It made sense when Nomura snapped up the fixed income folks in the far east and finally came to understand that it made sense to pay up to grab the equity talent that was at Barclays as well as scattered around the street. Lehman's and now Nomura's traders are extremely comfortable with risk and effective at managing it, arguably some of the best on the street. Much of the reason Lehman was brought down was do to the arrogance of Fuld. Nomura will succeed because they are more humble and will do a better job of managing excesses while rewarding those who deserve to be rewarded. Nomura is the best opportunity on Wall Street!
Nomura on the blocks (Originally Posted: 12/01/2011)
Speculation around Tokyo today that Nomura is on the blocks with two Japanese banks as possible buyers.
(1) What PE shops can handle Nomura's foreign operations and have appetite for financials? (2) How fast does this deal get done? And at what price?
Considering the debt market is non-existent for leverage, doubt one buyer (PE or Corporate) could pull off a purchase.
They're selling just the real estate business, or is the whole thing up for sale?
Whole thing. We kept hearing all morning that SMBC or Mizuho would only purchase the domestic businesses... hence the question.
Really!
Is it just their Japanese businesses or all of Asia Pac? Because they hold the old Lehman Brothers assets and I know quite a few people there. It wouldn't be a distressed sale would it? Haven't they been doing quite well?
If, and that is if, Nomura is sold, the FSA (Japan) would be expected to protect the core domestic assets, which would then be sold to a domestic institution.
To OP, I haven't heard the rumors to which you're referring but diversified investment banks don't get acquired by PE sponsors for a variety of reasons, most notabley: they're too big/expensive, can't really be leveraged, are highly cyclical, it is an extremely competitive space....
Second, absent an extremely high premium, its not exactly a sellers market. So unclear why anyone in this space would be selling. Financials, particularly diversified investment banks have been getting beat up lately, this isn't specific to Nomura.
That being said not the first time I've heard the SMBC rumor, so likely some real talks could have happened there, but the real question is why now?
by the way, I have a slightly better hair cut.
50/50 agree with your comment. However, one could make the argument for leverage in Japan considering the typically low interest rates. That being said, Tokyo Star (a third tier bank at best), was bought with leverage through what could be called a secondary buyout... although I'm sure Advantage Partners wishes they could re-live that decision. Also cyclcality could be argued as well. Nomura has fairly stable domestic securities business that tends to perform well even in down times.
I understand the key driver behind selling to be stress, although looking at the CDS market one could argue the opposite.
Agreed, the SMBC rumors are not new. However, tending to take this a bit more serious considering Mizuho has been throwing around the idea upstairs.
Why now?... good question. We don't deal with Normura, except PEFR&I or NPEC whichever you wish, so couldn't say.
Nomura Shuttering (Originally Posted: 11/25/2011)
Dealbreaker reporting that Nomura is planning to shut down all U.S. investment banking activities by year end...can anyone confirm?
bull shit
They are reporting what someone sent them...but I'm guessing she wouldn't post it if it came from [email protected]...i can't recall a news miss in the past.
I'm pretty skeptical of this rumor. Their US operations are actually doing okay relative to their Europe operations which are basically a cost-centre due to all the legacy Lehman fixed costs. They've repeatedly said they want to pull back from Europe and remain committed to investing/growth in the US.
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