Tokyo Report: Lehman Staff Hold Key for Nomura Target

Tokyo, Oct. 6 (Jiji Press)--Nomura Holdings Inc. <8604> has taken
a great leap toward becoming a leading world investment bank, by agreeing to acquire the Asian and some other operations of Lehman Brothers Holdings Inc.

Nomura must utilize personnel from the failed major U.S. investment
bank to realize the long-cherished goal, analysts say.
As its first such gigantic acquisition, the deal with Lehman will
take Nomura into uncharted territory. For example, the top Japanese
brokerage house has no experience of taking on more than 5,000 workers from
another firm.
Building on its dominant position in the Japanese securities
industry, Nomura has long looked to reinforce its advisory business for
mergers and acquisitions as more and more Japanese companies go abroad. To
compete squarely with U.S. and European rivals, Nomura saw abandoning its
"pure blood" strategy as unavoidable.
Nomura thus wasted no time in launching negotiations with Lehman
and quickly clinched a deal to acquire the U.S. firm's M&A business and
equity operations for hedge funds and other institutional investors.
Lehman employees well versed in the investment banking business
will be a "boon for us," said a Nomura executive.
The Lehman deal as a whole is a "good buy" for Nomura, an industry
insider said. While turning down the opportunity to purchase risky assets
such as stocks and bonds held by Lehman for trading on its own account,
Nomura was able to acquire the Asian operations for over 20 billion yen and
the European and Middle Eastern operations for only 2 dollars.
For investment banking, "manpower is everything," as one foreign
brokerage firm official puts it, so the deal will be meaningless to Nomura
if it loses key Lehman staff. Nomura has reportedly offered fat pay terms to
former employees at Lehman's Japanese units.
Furthermore, on Wednesday, Nomura created a new management
structure, appointing three non-Japanese employees from its European
operations as executive officers. Given the three new executives' active
roles in the acquisition of the Lehman operations, the appointments are
evidently a message that former Lehman workers can join Nomura's management
team.
To an extent, Nomura viewed Merrill Lynch & Co., Morgan Stanley and
other top U.S. and European investment banks as business models, and it
actively took risks such as engaging in the securitization of mortgages in
the United States. Some financial industry officials therefore have called
Nomura "Asia's sole investment bank."
But the current U.S. financial crisis testifies to the "collapse of
business models for investment banks that through securitization and
derivatives make investments dozens of times their net worth," says Toru
Umemoto of major British bank Barclays PLC.
Kenichi Watanabe, Nomura's president and chief executive officer,
told a gathering of some 600 senior company officials on Sept. 26 that the
Lehman deal is a "great opportunity to leap forward."
Watanabe, however, also said that Nomura will seek to grow under a
management policy "different from (those of) conventional U.S. and European
financial institutions."
In other words, Nomura should seek to promote its core business as
a securities company, namely advisory services for M&As and the discovery of
promising companies with listing prospects, at a time when the survival of
investment banks on their own has become increasingly difficult.
Nomura is exposed to a rapidly changing business environment. This
includes Mitsubishi UFJ Group Inc.'s <8306> reported plan to merge its
securities arm, Mitsubishi UFJ Securities Co., with Morgan Stanley's
Japanese unit, Morgan Stanley Japan Securities Co., after acquiring a 21 pct
stake in the major U.S. investment bank.
Time therefore may be running short for Nomura to reach its goal of
becoming a global investment bank.