Finding Foreign Assets to Feed Investors Back Home

After five years of missing big deals and losing market share, Nomura Holdings Inc. is staging a strong comeback outside Japan. The secret of its success: Japanese customers are hungry for international deals and for higher returns than can be found at home. Nomura has underwritten almost 70 international bond issues just since November, 2002.

Until recently, Nomura practiced what it called "localization," a business strategy that encouraged its foreign offices to act like local investment banks. That worked fine in some places, most notably London, where Englishman Guy Hands, who headed the company's Principal Finance Group for eight years, made billions of dollars for Nomura with a string of daring acquisitions, sales, and restructurings. But the think-local approach caused problems elsewhere. Some managers made risky investments, especially in emerging markets. Remember the Russian debt crisis of 1998? Nomura, a major trader of Russian bonds, lost almost $1 billion on that one. Meanwhile, a lack of coordination in the investment bank meant that Nomura got shut out of big deals, even those including Japanese clients. Nomura was not involved in 1999 when Japan Tobacco Inc. bought RJR Nabisco Inc.'s non-U.S. tobacco business, for example.

Time for a change of strategy, obviously. And after two years Nomura has come up with a new international game plan. In April, 2002, Hiromi Yamaji was installed as chief executive of Nomura International PLC and of Nomura Europe Holdings PLC, the group's British and European subsidiaries, and as chairman of Nomura Holdings America Inc. in New York. He has urged Nomura bankers to regain market share by taking advantage of the group's big client base among Japanese companies and investors. Part of Yamaji's job will be to improve coordination between Europe and the U.S. and to ensure that the Europeans fully exploit Nomura's alliance with San Francisco-based investment bank Thomas Weisel Partners LLC, which was forged in 2001. Weisel focuses on growth sectors of the economy, such as health care, media, and telecoms, areas where Nomura is increasingly focusing its M&A business.

The new push has gained Nomura a series of cross-border deals. Last October, it advised Japanese medical equipment producer Terumo Corp. when it bought Basktech Co., a British maker of artificial blood vessels. Nomura now also underwrites the lion's share of international bond issues aimed at Japanese investors. Among recent big deals: a $535 million bond issue for Swedish local government-funding agency Kommuninvest. The yield on that issue is 3.33%, while investors are lucky to get 1% on similar Japanese securities. At the same time, Nomura's asset-management operation is making steady progress in both Europe and the U.S.

It's not all clear sailing. Last March, Hands left to set up his own company, Terra Firma Capital Partners Ltd. He still manages Nomura's private equity investments, and Nomura is, in turn, the main investor in Terra Firma. The hope is that Hands will generate as much profit for his Japanese partners on his own as when he was at Nomura. But Hands has yet to make his first big independent deal. A $2 billion bid to buy a portfolio of apartments in the German city of Cologne fell apart in late February when the city council blocked the plan. And some of the investments Hands manages for Nomura are performing poorly. The chain of Meridien Hotels Inc. is one. It was hit by the downturn in tourism and is selling some of its European hostelries to raise cash.

Rivals also say that Nomura needs to do a deal for itself. "To exploit the Japanese connection to the full, they need a stronger investment-banking presence in both Europe and the U.S.," says a senior executive at a rival bank in London. Maybe so, but if Nomura goes shopping, it better look for sound deals. It has been burnt badly by the flashy stuff before.

By David Fairlamb in Frankfurt

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