Sadeq Sayeed

The CEO of Nomura for the EMEA region has taken the Japanese bank through its acquisition of Lehman Brothers' EMEA business and is determined to get maximum gains from the deal. Writer Geraldine Lambe

The collapse of Lehman Brothers may have triggered the most severe episode in the financial crisis, but two firms hope to grow their business by picking over its bones. If Barclays thinks Lehman's US business can propel it into the upper echelons of US broker dealers, Nomura believes a similar alchemy can be worked with its Europe, Middle East and Africa (EMEA), and Asian arms.

Sadeq Sayeed, CEO of Nomura's EMEA business, is unequivocal about the Japanese bank's ambitions. "We are the number one broker dealer in Japan. We wanted to be something similar in the international markets but never succeeded because it was too expensive. Lehman Brothers gives us the opportunity to fulfil that ambition," he says.

With Nomura unveiling its worst set of annual results last month, a ¥709.4bn ($7.3bn) net loss in the year to March 2009, many fear this ambition may be unachievable. On top of recession and asset write-downs, the costs of the acquisition have taken a heavy toll. Although Nomura acquired the Asian operations of Lehman for just $227m and the EMEA business for a token $2, the bank has paid heavily in terms of guaranteed bonuses and jobs. Industry estimates put costs at about $2bn. One ex-Lehman banker says that the newly merged EMEA business is only achieving revenues of between $1bn and $1.5bn.

Mr Sayeed says that the results were what the bank expected. "We front-loaded the acquisition costs into a six-month period and this was compounded by the fact that we had a number of write-downs on legacy positions. We acted decisively on these positions so that we could move forward into the next financial year with a clear financial position. We are now at square one, and the success of this acquisition should be judged from this point forward."

Beyond the triumph

The acquisition of Lehman Brothers is both a triumph and a missed opportunity. Once the toxic bits were carved out, there was much to admire. Lehman had spent years transforming itself from a bond house to a full service investment bank and had gone a long way towards building a successful equity and merger and acquisition (M&A) franchise.

Moreover, Lehman had internationalised its business to such an extent that about 50% of its revenues came from outside of the US. But the separation of the US from the rest of the franchise has unsettled client relationships and severed a once-lucrative transatlantic deal pipeline.

Mr Sayeed says that he does not underestimate this weakness, but says it is perfectly possible to build a US platform - and one in Nomura's image. "We will build a US business fit for purpose; to fit our business," he says.

The bank has already started, with more than 30 hires in the US equities business, says Mr Sayeed, including an 18-person team poached from Barclays/Lehman and Paul Sheard, appointed to the newly created position of global chief economist and head of economic research, also from Barclays/Lehman.

More importantly, says Mr Sayeed, it may be true that Lehman's transatlantic franchise has been gutted, but the synergies between the European, Middle East and Asian businesses that remain are just as valuable, "if not more so, considering the growing importance of the Middle East and Asia to global markets", he says.

Assessing the data

Judging from pre-acquisition data, Lehman's business has the potential to take Nomura's operations up a gear. Even in its Asian backyard (outside of Japan), Nomura only ranked about 21st in M&A pre-Lehman, whereas Lehman was ninth. In Europe, Nomura was ranked 51st in M&A in 2007, versus Lehman's 12th.

Mr Sayeed argues that there is already evidence that he is delivering the full potential of the combined firms. "Already in the first few weeks of this financial year we are seeing positive revenues in our business lines and I am confident that this will continue as the business ramps up."

This is particularly true for the trading business, he says. Following Lehman's collapse, its top-ranked European equity trading operations plummeted to 84th in the London Stock Exchange rankings; by March this year it had risen to 10th. Volumes stand at 100,000 trades a day with the capacity for 250,000 a day, says Mr Sayeed. "And that is with the firm working at 40% capacity. We should be running at full capacity by year-end."

So far, the acquisition has benefited Nomura's Asian investment banking business more than EMEA. According to data provider Dealogic, for the year to date it ranks first overall and third for Asia excluding Japan in M&A; in EMEA it is 14th. As an equity bookrunner, it is low down the tables at 47th in EMEA; in Asia, it is second overall and 14th for Asia excluding Japan.

There are positive signs on the banking side in Europe, however. Nomura was exclusive financial advisor to Polish media and entertainment group ITI Holdings in the reorganisation of the shareholding of its digital pay television platform, and acted as advisor to Air France on its acquisition of a stake in Alitalia. It was recently joint lead-manager on a $4bn three-year bond for the Société de Financement de l'Economie Française and joint underwriter for HSBC's $12.5bn rights issue. It is the first Asian investment bank to be awarded gilt-edged market maker status from the UK's debt management office.

"Relationship-based business takes much longer to build - or rebuild," says Mr Sayeed. "But the Lehman deal created a profile for Nomura that didn't exist before, outside of Japan, and these deals are an early signal that clients believe in the franchise."

Mr Sayeed is adamant that the bonus and job deals for Lehman bankers were not too expensive. "Could I have saved a few percentage points on the price? Probably. Would I do the same deal again? Undoubtedly. We only hired the people that we wanted and gave two-year job guarantees only to key staff. We gave a dollar and a headcount budget to every business leader; to rebuild the business it was critical that we kept the key bankers."

Changes in the ranks

Some senior bankers have left, including Riccardo Banchetti, co-CEO for the region, and Alexis de Rosnay, former co-head of European investment banking. But Mr Sayeed, who does not want to comment about specific people, says that the bank has not lost enough bankers to damage the franchise. "It was inevitable that we would lose a few of the bankers that we wanted to keep, but it was such a small number that it is irrelevant to the overall business. More importantly, we have kept the key bankers in each region, and have been able to hire others to continue the build out."

Mr Sayeed argues that recent hires prove Nomura can attract top talent and are therefore a crucial indicator of the industry's belief that Nomura can make the new platform work. Recent recruits include: Andrea Pellegrini, former head of investment banking for Italy, and Makram Abboud, former head of emerging markets and Middle East, both from Merrill Lynch; Iain Smedley, co-head of European power and utilities M&A from Morgan Stanley; Gianluca Gera, formerly managing director, equity derivatives at Goldman Sachs; and Selim Toker, previously head of risk advisory and capital solutions at UBS.

Although only three of the 14-member global wholesale committee are non-Japanese, Mr Sayeed dismisses talk of a culture clash at the firm. "We are an international firm - and increasingly so. In the European business alone there are 55 nationalities and only 70 expat Japanese bankers," he says.

Shift of powerbase

Moreover, he says the powerbase is no longer concentrated in Tokyo. "For the first time, the majority of the wholesale business headcount is based outside of Japan. Our global head of investment banking [Hiromi Yamaji] is based outside of Japan [in London] for the first time in Nomura's history. Our global head of equities [Naoki Matsuba] is now based in New York," says Mr Sayeed.

So far it is difficult to interpret what the market thinks about Nomura's bold move. Its share price is at a 26-year low and plummeted in the middle of its public offering in March, requiring joint-lead manager Mitsubishi UFJ Securities to buy 54 million shares to stabilise the price. Mr Sayeed says this was more a reflection of the broader market and that investors had done well out of the deal regardless. "We issued at ¥417 and shares are now trading at ¥607. In relative terms, Nomura's share price has fallen less and been more stable than competitors," he says.

With many of the building blocks in place, Nomura has to prove that it can turn them into an independent, global investment bank. And this must be done at a time when much of the industry believes the ideal business model includes a deposit-taking commercial bank. Mr Sayeed, who believes the independent model is as valid as ever, is certain that Nomura can deliver. "What makes us different from other investment banking businesses is that our roots are in Asia," he says. "We have the right people and the right structure to deliver against our plans."

Career history

Dec 2008 - CEO of EMEA, Nomura International.

Sep 2008 - CEO of acquired European businesses and executive vice-chairman of Nomura International.

1999 - Special advisor to the board, Nomura Holdings.

1997 - Head of leveraged funds group, CSFB, London.

1994 - Group head European foreign exchange, money market and commodities group and global options group, CSFB, London.

1992 - Head of treasury and mortgage options, fixed income, CSFB, New York.

1989 - Managing director and head of European financing group and short-term asset trading department, CSFB.

1987 - Director at Financiere CSFB treasury and group finance.

1985 - Trader, cross markets arbitrage group, Credit Suisse First Boston, London.

1976 - Research associate, World Bank.

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