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Lehman’s dealmakers continue to slip through Nomura’s fingers.

What a tumultuous month October was—the world stood at the edge of a precipice in terms of a major recession, or possibly even a global depression, and November promises just as much action. We went from having four major independent US securities firms to now having none. The markets are seesawing wildly day-by-day as the US politicians deal with the largest federal bailout since the great depression, and central banks around the world are collaborating to try to prop up the US dollar while at the same time trying to contain the impact of the contagious meltdown of their own economies.

Terrie Lloyd
Publisher, J@pan Inc Magazine
Writer of Terrie’s Take
terrie.lloyd@japaninc.com

One of the outcomes has been that conservative Japanese banks and securities firms, Nomura and Mitsubishi UFJ Financial Group (MUFG) in particular, have landed themselves in a once-in-a-lifetime position to buy into struggling foreign securities firms for large discounts. We saw Morgan Stanley agree to sell 20 percent of itself to MUFG for around 900billion yen ($8.65 billion) to 1 trillion yen ($9.62billion) and will become an equity method affiliate of MUFG.

But the bigger news was of Nomura’s rapid-fire buyout of Lehman Brothers’ staff in Europe, the Middle East, and Asia, and subsequently the acquisition of IT infrastructure as well as an Indian IT group. With this move, Nomura picked up about 8,500 extra staff, boosting its employee numbers by almost 40 percent. When the news first hit the wires, it was hailed as a gutsy move, and a chance for the company to return to being a global player, after its pullback to Japan in the early 2000’s.

But we’re not so sure whether “gutsy” equals “smart.” Very soon after the buyout was announced, reports started flooding in that a worrying number of top performers at Lehman units around Asia—the people who pull in the deals—will be leaving the company. While Nomura may have the cash, it appears that it doesn’t have the cachet to keep these high-flyers. The problem is that without these front office money earners, what is the company going to do with all those thousands of extra middle- and back-office people? That’s a question many Lehman people must be asking themselves.

After Nomura bought the Instinet brokerage company from private equity firm SilverLake Partners for $1.2billion in 2006, it proved that it could absorb a major foreign operation without getting indigestion. We posit that this is because Instinet is primarily a back-office operations business, and thus is well suited to Nomura’s worker bee culture.

Thinking along the same lines, then, surely Nomura would have done better to leave the Lehman staff for Barclay’s Capital or Standard Chartered to pick up, and instead focused just on Lehman’s Asian IT infrastructure and the Indian IT group that it acquired in the second part of its deal— both are world class technologically and should make a good return for Nomura.

We realize that Nomura has global aspirations, but before it starts shelling out multi-billions for 8,500 salaries, only to have to start firing staff in a year or so, the company needs to realize that the assets it now owns in October 2008 are not the same business that Lehman Brothers was just two months ago. People are mobile, and it appears that some of the best ones from Lehman are voting with their feet.