Following a critical reorganisation, Brian Lawson, chief operating officer fixed income, Europe, at Nomura, says the business is once again ready to recapture its pre-1998 position. He talked to Geraldine Lambe about the focus of building intelligent, long-term businesses.

In the past three years, Nomura has made a concerted effort to re-stake its claim in the international arena. A key part of that drive has involved the institution of a new management structure. At board level, Yasuro Agemura is head of global markets and Shigesuke Kashiwagi is global head of fixed income.

Outside of Tokyo, fixed income responsibility was divided last year by the appointment of two co-heads – Najib Canaan in the US and Zenji Nakamura in Europe; reporting into them are two chief operating officers for fixed income – Joshua Edelson in the US and Brian Lawson in Europe.

According to Mr Lawson, who was appointed to the COO role last October from his previous role as head of international syndicate, the creation of an integrated international management team was essential in order to strengthen the development of Nomura’s business and to increase the coordination of its strategy. “Back in the mid-1990s, Nomura’s international business was run in a very localised way – and there is always some tension involved in that sort of model. The new structure enables us really to leverage our talent globally, but at the same time to maximise cost control and to allocate our resources more effectively,” he says.

The final structure is now in place, but there is more growth to come to put Nomura back to where it was before the crisis in 1998, when it lost a lot of money in Russia, US mortgages and in cleaning up its balance sheet. “We have some way to go before we are back where we want, but what we have built since 1998 is an organised and disciplined business, which has growing profitability in a number of business areas,” says Mr Lawson.

Room for expansion

The London operation has the budget to add about another 15% to its fixed income staffing levels in the coming year. But this is no ‘hiring spree’, stresses Mr Lawson. “The need for each hire has been brutally stress-tested and they are to fill identified gaps. Every hire is meant to increase net revenue on a fully costed basis.”

Nomura is unwilling to provide any current figures because of reporting restrictions, though it is clear that Q3 figures were disappointing after very positive Q2 results. But Nomura’s hiring strategy is paying off in terms of deals. In June 2001, the firm hired Stefano Ghersi (as head of fixed income capital markets) and a team from Merrill Lynch, where they had set up a public sector franchise, and that team is now making headway for Nomura. Last year it carried out 10 such deals and Mr Lawson says it is second in the sector behind Merrill Lynch. “Two years ago we were virtually invisible in this marketplace, now we are one of the leaders.” This is a major growth area, he adds. “Municipalities and other public sector organisations are looking towards more sophisticated financing solutions to supplement government funding.”

He says Nomura’s public sector push illustrates an element of its hiring strategy: it will target only those skill sets that are able to add incrementally to the business and which are also a good fit with the skills they have already. The rationale is straightforward. “We are charged with building, every year, a more profitable, more diverse and higher calibre portfolio of businesses that in turn will raise the profile of the firm.”

Climbing the league table

In simplistic terms, raising Nomura’s profile means moving it up the league tables. But Mr Lawson says that Nomura sees “no value” in throwing money away to buy market share and destroying shareholder value in the process. “The whole exercise is based on building intelligent, long-term businesses that are viable and very strong in their respective segments, and to make sure that we deepen the bank’s franchise in terms of the range of businesses in which it operates.”

Nomura has big plans, but is under no illusions. Mr Lawson is frank. “It is clear from our volumes that we are not a global bulge bracket player; and you have to bear in mind that we are not a commercial bank and we have a triple B rating – however unjustified that may be.”

He says the rating can be a “hindrance” in some portions of the derivatives business, for example. While Nomura has a triple A-rated special purpose vehicle, that is constrained in terms of how many lower rank counterparties it is able or willing to take on; and it’s often easier in some of the commoditised derivatives products to work with a double A-rated bank. As a result, Nomura’s priorities are complex structured deals and wider margin products.

Similarly, Mr Lawson says that in competing against European banks in lending to European corporates, Nomura has its hands tied. “Many commercial banks link the provision of often mis-priced loan capacity to ancillary business. The market appears not yet to have accepted the serious conflicts of interest that this can generate. Such events as the failures of Cirio and Parmalat serve as clear warnings to investors.”

Head-to-head competition

He says, however, that Nomura is able to go head-to-head on intellectual capital, commitment and strong distribution capabilities. “We are a strong multi-niche firm. Because we have a hunger that many other firms often lack, and because we can demonstrate that we have an investor base with very close relationships to the firm, we are taking greater market share without loss of profitability.”

He cites Nomura’s forte in tapping the Japanese and Asian dollar investor base – who have a thirst for flow products – but also its growing strength in euro products. He says the firm has led the “re-sponsoring” of the euro to Japanese investors who lost a lot of money after the currency launched. In 2003, for example, Nomura worked on the e5bn deals for EIB and Austria (including a Japanese book of nearly e1bn for the EIB deal). The bank was again mandated by Austria for its reference sponsored euro benchmark for 2004.

Another area that Nomura is targeting is what it calls intelligent asset finance – deals in which it is willing to act as principal, that involve more complex structures and that sometimes involve detailed balance sheet management. Commoditised, low margin business, such as vanilla asset-backed securities, is less attractive. “We are not interested in competing to work for the lowest possible fees,” says Mr Lawson.

Multiple product development

In Europe, the focus is on product development in areas where it can be a strong player. Flow euro product, such as government bonds, is one of them. Mr Lawson says Nomura’s volume of European business is over seven times what it was two years ago: it is now a primary dealer to the Belgian, French and Greek governments, and hopes to become a super primary dealer in Italy. This is partly because of the firm’s Japanese distribution capabilities, but is by no means just a Japanese story. US agency and treasury markets are also important and Nomura has recently made two significant hires in New York to boost the firm’s capabilities there.

“This is a volume, profile business. It will be good for our league table positions, will boost our profile with our larger accounts and we believe we can make money there.”

Other target areas include structured derivatives – such as baskets, medium term notes (MTNs) and structured products – and asset financing and real estate. In the former, Nomura last autumn appointed Gayle Turner into the syndication team from Commerzbank, where she was head of MTNs. Last month, Gavin Jackson joined from BNP Paribas to head up Eurobond high-grade trading, a newly created role that Mr Lawson says reflects the build-out of Nomura’s activities in liquid dollar and euro high-grade products.

Nomura’s growth plans for the fixed income business are set against an increasingly difficult environment. Mr Lawson acknowledges that the industry as a whole will be facing more challenging times, but believes that Nomura will still be able to achieve its aims. He says corporate balance sheets have strengthened and there will be less new borrowing, and possibly a period where economic direction is less clear. It will therefore be harder to persuade investors to buy product. There is also a high correlation of emerging markets and based on any historical data, that is unsustainable; emerging market and high yield spreads are likely to widen in the second half of the year and into early 2005, he says.

“The loss of direction and volatility creates a difficult environment in which to make money. Combined with corporates’ stronger balance sheets, then the future for the industry as a whole is patchy at best. At Nomura, though, we are still in a growth phase. By implementing our plans successfully, and in synchrony, then we have a lot of potential to build growth, profitability and profile for some time to come.”

Career history

Mr Lawson has a Masters degree in economics from Downing College, Cambridge.

1979: Joined Morgan Grenfell & Co as an economist with the fixed income division. Promoted to head of frequent borrower desk and senior assistant director in 1986.

1987: Appointed director of fixed income syndicate at Natwest Markets.

1989: Joined Deutsche Bank as director and co-head of London fixed income syndicate. Promoted to executive director and head of UK capital markets before becoming head of global equity capital markets in 1991.

1995: Joined ABN Amro to establish the firm’s international new issue activity. Appointed head of global financial markets in 2000.

2001: Moved to Nomura International as head of non-Japan syndicate. Appointed chief operating officer for the firm’s London fixed rate operations in October. 2003: Retained role as head of international syndicate.

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