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Asia-PacificMay 27 2010

Nomura's William Vereker on the bank's expansion plan

William Vereker, co-head of global investment banking at NomuraNomura is making an audacious bid to turn itself into a global investment bank, and its co-head of global investment banking is happy with the progress made so far. Writer Geraldine Lambe
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Nomura's William Vereker on the bank's expansion plan

In the 18 months since Nomura grabbed with both hands the opportunity presented by a bankrupt Lehman Brothers, it has gone a long way to transforming itself from a Japanese securities powerhouse to a nascent global investment bank.

In Europe alone it has added 950 staff to those it acquired from Lehman. The appointment of a non-Japanese executive, ex-Lehman banker Jesse Bhattal, to the bank's executive board and as head of Nomura's wholesale business is little short of a revolution at a Japanese bank, as is the migration of about 70% of its Japanese staff to Western-style work contracts.

Making progress

The investment in Nomura's ambitious plan is slowly beginning to pay off. According to Dealogic, Nomura's market share of global investment banking revenues rose from 1.8% at the end of 2008 to 2.5% at the end of last year.

"Looking at the position of the business today versus 18 months ago, the momentum is startling," says William Vereker, who was named co-head of global investment banking at Nomura in April. "Clearly, in absolute terms, we are still behind established peers in terms of market share and profitability; but, equally clearly, we have outperformed market expectations significantly in terms of integrating the legacy Lehman business, deal flow, financial performance and the quality of the people we have attracted."

For all of Nomura's success, it has been the exiting staff, rather than the incoming recruits, that have dominated talk about the firm. While the loss of senior bankers has been largely concentrated in Asia, there have been other significant losses - including the head of the European business, Sadeq Sayeed, and Christian Meissner, previously deputy global head of investment banking who left in April to join Bank of America Merrill Lynch. The timing of banker exits - coming shortly after Nomura's guaranteed bonuses came to an end - has prompted some commentators to question Nomura's ability to retain its legacy Lehman people, and move forward to build a global business.

Mr Vereker wants to firmly lay this ghost to rest. In the first instance, banker turnover at the end of the financial year is expected; and most of the departures had a back story, he says. When there is any big management change - such as Mr Bhattal's recent appointment - there is always a certain amount of movement.

"Recent staff changes are no different to those at any other investment bank. Banks generally expect to churn anything up to 10% of the investment banking headcount at the end of every financial year, and we are well below that figure. The staff exits at Nomura are symptomatic of normal movement or senior management changes, not of a malaise at the firm," he says.

Some analysts have also suggested that Nomura is stacking up its fixed costs by offering disproportionate base salaries. Mr Vereker argues that bankers do not just move for money, and are more interested in the business proposition.

Tantalising prospect

Mr Vereker himself joined Lehman Brothers from Morgan Stanley in 2005, attracted by the idea of taking part in Lehman's then European expansion. He says that Nomura offers a similar proposition for bankers now, and that is what is attracting top recruits. These include John Hyman, a former Morgan Stanley colleague whom Mr Vereker hired in April as co-head of global finance, alongside Philippe Dufournier.

"Good people don't move only for money; they move for fundamental career reasons," he says. "What we can offer bankers is a role building a fast-growing bank with great Asian strength. They have the chance to be part of building a business that is unencumbered by legacy issues. Individuals can make a huge impact on the business and that is a great proposition for any banker."

Moreover, he argues that the Lehman team will likely prove to be an advantage in the present climate. "Our [ex-Lehman] people take nothing for granted. They have recent experience of 'earning the right' to do business with a client - and it is critical to have that kind of mindset."

He acknowledges that there is still a long way to go. Nomura's research platform and its secondary trading business are performing extremely well, but the primary equity markets business is seriously lagging. Mr Vereker admits that Nomura missed out on the large recapitalisations and rights issues last year, even if some of them were never going to be within the bank's reach at this stage of the bank's expansion, but the appointment of Mr Hyman - co-head of capital markets at Morgan Stanley until he resigned in January - is seen as a promising signal for the bank's primary business.

Mergers and acquisitions (M&A) is also a slower-build process. "We have had many positive wins, including mandates for companies such as Anglo American and Chinalco, but investment banking is relationship-based and has a long lead time. It takes time for blue chips to get comfortable with an institution," says Mr Vereker.

In the UK, Nomura has had a string of wins including March's role defending online retailer Net-a-Porter on its approach from the luxury goods group Richemont.

To extend its reach in the UK, Nomura recently acquired advisory boutique Tricorn. This immediately paid off when it landed an advisory role for what has been dubbed the 'Red Knights' consortium that has been eyeing a bid for UK football club Manchester United. It is also having success with financial sponsors, including the sole advisory role on US private equity group Kohlberg Kravis Roberts' $1.5bn buy-out of UK retailer Pets at Home.

Such deals helped push Nomura up the European M&A league tables by 12 places to 12th position by April this year. "We are just outside the top 10 in global market share terms but that is in line with our expectations and I am very happy with the deal pipeline that we have in place," says Mr Vereker.

And there is still a unique opportunity to win new clients, he adds. "Companies are very disappointed with the industry and they are reassessing what firms they do business with. Clients are wide open to doing business with new firms that can prove they have loyalty, integrity and capability. We could not have done in 2007 what we are doing today."

Mind the US gap

The biggest gap in Nomura's global ambition is the lack of a significant presence in the US - where it currently has about 60 bankers, with plans to bring that to about 100 by the end of the year.

This lack of capacity knocks out a huge amount of both markets and investment banking deal flow. Mr Vereker admits that building organically is difficult and he does not discount the suggestion of making an acquisition - although he stresses that this is not yet in the offing and says that the immediate priority is to increase market share in its core markets through organic growth.

"Our key focus in the near term is to build a sustainable business in our core regions of Japan, Asia and Europe, and to carry on building a competitive US business as part of a global platform to ensure that we can support our global clients," he says.

Emerging market target

Mr Vereker acknowledges the importance of growing in the US, but he also stresses that the advantage for the investment bank in the shift of economic power and markets activity towards emerging markets, particularly to Asia, should not be underestimated.

"Emerging markets are an increasingly influential driver in global activity - especially Asia. The kind of fee pool growth experienced in Europe versus the US since the 1990s is now being replicated in Asia versus everywhere else," he says, adding: "We are extremely well placed to be a part of that."

Nomura has some advantages. Having a pure investment banking business model will help to minimise the effect of any regulatory heavy-handedness; it is well capitalised and has a broad-based funding model. But, while Mr Vereker says it has a strong enough balance sheet to support clients in margin loans, acquisition and leveraged finance, and to allocate to its equity underwriting business, it lacks the balance sheet clout of many of its competitors.

He argues, however, that this is not too much of a hindrance. "Relationship lending will never go away, but as credit concerns ease, and access to capital becomes a bit easier, the willingness of clients to be pushed into doing business with their lending banks will recede. The question of whether a pure-play investment bank can succeed is answered by a look at the league tables."

One priority will be to focus on continuing Nomura's positive earnings momentum and addressing the investment bank's credit rating, which was downgraded during the crisis, essentially, says Mr Vereker, because it did not take government capital. The target is to get the bank into an 'A' territory credit rating to reduce the cost of funding.

All the bank's plans are very achievable, he says. "We have the right management and leadership structure in place to execute our strategy. Four quarters of positive earnings show that it is already working."

Career history

William Vereker

2010 - Appointed joint head of global investment banking at Nomura and member of the company's wholesale executive committee

2008 - Appointed head of European investment banking at Nomura following its acquisition of Lehman Brothers in Europe and Asia

2008 - Promoted to European head of investment banking at Lehman Brothers

2005 - Joins Lehman Brothers as head of global natural resources and power

2002 - Promoted to head of European utilities at Morgan Stanley

2001 - Appointed managing director at Morgan Stanley

1996 - Joins Morgan Stanley in mergers and acquisitions

1992 - Joins Babcock and Brown as a founder member of its advisory business

1991 - Appointed head of Schroders Venezuela

1988 - Joins Schroders as a graduate in corporate finance

1988 - Graduated from Cambridge University with a BA (Hons) degree in history

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