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Subprime buyins: Nomura at Lehman’s, Mitsubishi at Morgan Stanley

September 23, 2008
By Ken Worsley


As I noted in the most recent edition of Seijigiri over at Trans-Pacific Radio, on September 16 Lehman Brothers failed to make a 121 billion yen payment to the Ministry of Finance for 2 year bonds that it had agreed to purchase at auction. In addition, another 288.5 billion yen in 5 and 10 year government bonds were bid for but never paid for. The Ministry of Finance, however, apparently does not plan on making any addition bond issuances, as the non-payment for these bonds amounts to about 0.3% of this year’s total planned issue.

In other news, it appears that Nomura has bid successfully to take over Lehman’s Asia operations. Lehman was also the lead underwriter for the Urban Renaissance Agency’s planned issuance of 40 billion yen worth of bonds later this week (Remember them? Chaired by former Prime Minister Shinzo Abe, the Urban Renaissance Agency were leading the operation to build a foreigner-friendly financial district in Tokyo). Nomura will now manage the issue of these bonds.

At any rate, the Nomura buyout of Lehman’s operations reportedly cost the firm just over 20 billion yen. From December to May, Lehman’s Asia-Pacific operations posted revenues of about 147 billion yen. Although the purchase does not include real estate assets, it still gets Nomura a boost in the Asia market, where it has made some inroads in recent years. The big question now will be how many of Lehman’s former 3,000 employees in the region Nomura will be able to keep on deck.

And, Mitsubishi UFJ Financial has announced that it will pump about 900 billion yen into Morgan Stanley, in order to take a stake between 10% and 20% of the firm. There is a chance, though somewhat slim, that MUFG could walk away as the largest single shareholder in Morgan Stanley.

Initial reaction: This is looking like a potential huge coup for both Nomura and MUFG. We’ll have to see how things play out, but it’s hard to imagine either firms getting what they’re getting at better prices.

Filed Under Banking, Bankruptcy, Business, Finance, Japan 

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Comments

27 Responses to “Subprime buyins: Nomura at Lehman’s, Mitsubishi at Morgan Stanley”

  1. www.japansoc.com on September 23rd, 2008 1:52 am

    Subprime buyins: Nomura at Lehman’s, Mitsubishi at Morgan Stanley Japan Economy News & Blog - Business, Economy, Market…

    Japanese banks are buying up huge chunks of US investment banks at ridiculously cheap prices….

  2. WG on September 23rd, 2008 2:01 am

    Wasn’t it a few months ago that Nomura was pulling out of the US market due to subprime exposure? That makes me worry about their abilities as an equity partner with such a huge stake.

  3. paul on September 23rd, 2008 2:32 am

    Who’s getting Teldar Paper?

  4. Ken Worsley on September 23rd, 2008 1:36 pm

    And latest reports have it that Mitsui Sumitomo is ready to pump about $1 billion into Goldman Sachs, which would tighten their equity relationship.

  5. Charlie Boss on September 23rd, 2008 10:50 pm

    I wonder if investment banking jobs will ever be as attractive as they were before the credit crunch. My feeling is that the events of the last two weeks have shaken the confidence of prospective investment bankers across the world, and it will be a while before they’re willing to gamble their careers at the sharp end of the financial services sector.

    If you’d like to read more about recruitment in the financial services, take a look at the FreshMinds Talent Blog here.

    Thanks,

    Charlie

  6. Rog on September 23rd, 2008 11:46 pm

    I wonder if investment banking jobs will ever be as attractive as they were before the credit crunch.

    Are you kidding? Things might be different for a bit but it all moves in cycles. These are still the most sought after jobs in the world and they will continue to attract the best talent.

  7. Jeremy on September 24th, 2008 3:31 pm

    paul “Who’s getting Teldar Paper?” SWEEEEET ONE BABY! What was the name of the Airlines in that movie again “Jet Blue”?

    Investment Banking will never go away boys, in fact, it is getting great for the average guy at this very moment in order to pick up the slack of the Investment firms. It is just that now they will be more cautious and hopefully more regulated in the future. Banks will do more of it now.

  8. Ken Worsley on September 24th, 2008 4:40 pm

    Jeremy, fully agreed. I really can’t imagine there being any sort of recruiting difficulties in the industry.

  9. WG on September 25th, 2008 1:15 pm

    Now Nomura’s in on Lehman’s European operations, for less than $200 million? Did no one else bid?

  10. Ken Worsley on September 25th, 2008 10:36 pm

    $200 million isn’t very much. Nomura can afford to lose it. They simply have no other realistic chance to break into the European market. This is a move made from a position of insecurity. A buyin has a chance to give them what they could never earn on their own.

    The low price should show the value of the assets as assessed by rival market players.

  11. Steven Towns on September 26th, 2008 7:24 pm

    Price paid for Lehman’s human cap and IT in Europe and the Middle East was US$2. Although, out of necessity, Nomura also set aside $1B for a bonus pool. So the costs of the acquisitions are not material given it has about $6B in cash. However, two challenges Nomura faces are that it has to service debt commitments of a similar amount and it has to figure out how to integrate Lehman (namely managing a highly likely culture clash stemming from style and compensation expectations, not to mention the IT side). Overall, I still believe these are smart moves by Nomura. Shareholders have to be patient — a nice pop in recent trading but the stock is still at quite depressed levels.

  12. Ken Worsley on September 26th, 2008 7:49 pm

    Did the $2 include IT for Europe/ME ops? That’s the part I’ve seen different things on. The big challenge is going to be carrying the personnel costs while client accounts are rebuilt, since the accounts are not part of the deal.

    It does look like the buyout of Asian ops, at about 24 billion yen, includes staff, trading systems and IT.

  13. Steven Towns on September 27th, 2008 1:37 am

    Not sure, but assume it does. Nomura is on the hook for current/ongoing salaries and has a provision for the bonus pool, so it seems the IT was part of the $2 bundle.
    Hard to imagine otherwise.

  14. seth on September 28th, 2008 1:10 am

    Mori and Roppongi Hills are bound to be hurt by the 8 floors emptying out and the loss of revenue there. Meanwhile, real estate agencies who depend on income from leases to employees will be lucky to survive.

  15. MMM on September 29th, 2008 10:01 am

    With one triumphant deal, Nomura tells the world: Japan is back

    “…the Nomura boys were partying, boisterously raising glasses to an unsettling new industrial scene in which their stuffy, conservative Japanese brokerage suddenly had become the Toyota of global investment banking.”

  16. Ken Worsley on September 29th, 2008 1:06 pm

    The Toyota of global investment banking? Toyota didn’t earn their place “suddenly.” Something is amiss in media coverage of this episode.

  17. Jeremy on September 30th, 2008 9:15 pm

    What a crock o’ sh….. Nomura the Toyota of global inv. banking… that is funny… they need to keep the right people first, let’s see if they can even do that, then there are a million other things that need to fall in line after that. I can’t imagine Funds going to them at this point trying to get deals done

  18. Boz on October 1st, 2008 1:14 am

    Without the right people, information asymmetries are going to hurt Nomura.

  19. john on October 2nd, 2008 2:59 pm

    So next time there is a crash Japanese depositors in MUFJ will get burned ?

  20. Rog on October 2nd, 2008 6:03 pm

    Nomura has now bought up Lehman’s back office and IT ops, which are run out of India. This should help them on their global crusade, though I still wonder if their marketing is up to the task.

  21. Ken Worsley on October 3rd, 2008 12:20 am

    John,

    I doubt that could happen, for a couple of reasons:

    1) Depositors in MUFG are insured. If they have deposit accounts above their insurance, then they can afford a financial planner to help them better structure their savings.

    2) MUFG acquired shares at such a low price that they should be able to bleed some over time to ensure that the investment is profitable. I don’t know if this is their strategy, but it should be; nothing lasts forever - especially companies - and cycles will continue to run their course.

    I would be more worried about the share value of MUFG than the deposits.

  22. Ken Worsley on October 3rd, 2008 7:35 pm

    Jeremy and Boz,

    Good calls on the HR front. Nomura is clearly having trouble so far. Just today UBS announced that it hired four of Lehman’s former oil and gas bankers from the Asia unit. This is in addition to the talent Merrill Lynch and Blackstone have already lured over.

  23. Jeremy on October 3rd, 2008 9:01 pm

    I’m not saying they won’t do well but the people are key, they can still steal people away from other places if they are willing to spend…

  24. Steven Towns on October 9th, 2008 1:10 am

    Just yesterday Bloomberg reported that Nomura will lose 60% (100/170) of the Lehman JP equity staff. Unfortunate for NMR but it’s reality. They would’ve left sooner or later. Barclays clearly willing to pay as are PE and HFs.

  25. Ken Worsley on October 9th, 2008 1:24 am

    Steve,

    It’s not surprising. Standard Chartered has managed to pry away key people from the Asia commodities team as well.

    Nomura CEO Watanabe told Dow Jones, “The people who we want to retain have already come on board.”

    I don’t see the corporate cultures meshing, and - although I’ve refrained from saying this anywhere yet - I just don’t think Nomura is that appealing a potential employer for many people.

  26. half monty on October 13th, 2008 4:47 pm

    You’re all missing something huge. How is MUFG, a bank known by the US to be involved in money laundering, allowed to take this stake in Morgan Stanley? Is the US that desperate? It seems that an extra $9 billion or so could have been thrown into the bailout to cover this. Something is amiss.

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