Barclays makes a move into Japanese equities

The UK firm hires about 100 people for the new business, most of whom were previously with the Lehman franchise taken over by Nomura. Meanwhile, Nomura appoints a new head of Asia-Pacific equities.
The announcement last week that Barclays Capital has hired about 100 people, mostly from the former Lehman Brothers franchise now owned by Nomura, and has launched equity sales and research services in Japan, shows that the UK bank is serious about building a global equities platform even as the equity markets are tumbling around it.

So far, Barclays has been primarily focused on fixed income-related products in the areas of financing and risk management, as well as strategic advisory and some equity-related derivatives businesses. Before these latest hires, it had a team of about 500 people in Tokyo.

The news comes just over a month after Barclays bought LehmanÆs investment banking and capital markets businesses in North America, following the US firmÆs bankruptcy filing. LehmanÆs businesses in Asia-Pacific and Europe were picked up by Nomura. Barclays noted in a press release that Japan is the first country in Asia where it is adding scale to its equities platform, suggesting it will be looking to set up shop in other Asian markets as well.

Yu Sakakibara, a spokesman for Barclays in Japan, says the US business in itself isnÆt sufficient for servicing equity clients who often invest in markets across the globe. To become a force to reckon with the bank needs to have a presence in other markets too.

Robert Morrice, chairman and CEO for Asia Pacific at Barclays, said the announcement means the bankÆs clients now ôhave access to a comprehensive range of equity products alongside [its] expertise in strategic advisory, financing, and risk managementö. He added that the firm will be growing its equity business across the region.

The hiring of the ex-Lehman staff is a smart move by Barclays as it would be much more difficult to make individual hires of that scale û and it would arguably have taken a lot longer to cherry-pick talent from a multitude of other firms. Now, it will be able to hit the ground running, even if its new business will still be small compared with the domestic firms. No doubt, the Lehman staff brought onboard in the US will have provided invaluable advice on which of their former colleagues in Japan may be worth hiring.

The mass defection will be disappointing to Nomura, since the employees were a key part of what it was acquiring from Lehman in the Asia-Pacific region. According to earlier announcements, it bought the human resources and IT platforms, but not the trading assets and liabilities. Lehman, which contrary to its US peers had its Asian headquarters in Tokyo, had about 3,000 employees in Asia-Pacific at the time it went bankrupt.

In a sign of how keen Nomura was to retain the Lehman staff, sources say the Japanese bank offered all employees the same bonus in 2008 as they received in 2007 and the top-500 staff will get the same again in 2009 û a generous offer in a year when most investment bankers are expected to take home nowhere near the total compensation they received last year. When the acquisition was completed earlier this month, Nomura said about 2,600 former Lehman employees had accepted its offer to stay on for now.

However, analysts say the loss of even as many as 100 people in Japan wonÆt hurt NomuraÆs business as the firm is already one of the leading equity brokers in the country û with strong franchises across sales, trading, execution and research. In fact, they say, the question is really what Nomura has to gain from the addition of LehmanÆs business in its own home market. It would have been much more significant, had the defections happened, for example, in the UK.

ôThe main reason why Nomura acquired Lehman is to expand in Asia and Europe,ö says Azuma Ohno, a bank analyst with Credit Suisse in Japan.

Despite the logic in terms of offering a global product, BarclaysÆ move into Japanese equities did raise a few eyebrows as the market is widely regarded as being highly competitive. Indeed, some analysts, including Ohno, argue that there are already too many players in the market and question whether there is really room for more. At the very least, Ohno says, it is a hard market to break into. The launch of the new business also comes at a time when the Japanese equity market û like most other global markets û is under severe downward pressure, with the benchmark Nikkei index having lost 50% of its value so far this year.

However, Jesper Koll, a former Japan analyst for Merrill Lynch who now works for boutique research firm Tantallon Research Japan, says the market may well have too many brokers in terms of sales people, but at the same time it is also under-researched.

ôIf and when the dust settles, I think people will be prepared to pay a premium for solid fundamental research,ö Koll says. This is particularly true, he says, since the in-house research expertise that has been built up within the asset management industry in recent years û be it in boutique funds, hedge funds or large mutual fund complexes û is likely to suffer cost-cutting.

ôIs this a tough market? Of course it is. ItÆs an uncertain market because we donÆt know where we are going to end up. But if you were to place a bet how the industry is going to be making money in 12-18 months, itÆs probably not through complex trading products and trading platforms. Rather it will be back to basics. And from that perspective, a fundamental bare-bone brokerage business (like the one Barclays is aiming for) is probably not a bad business to have,ö says Koll, noting that CLSA and Macquarie are two firms that have been successful in implementing that business model in Japan.

Shinichi Tamura, an analyst with Deutsche Securities in Japan, also notes that the current downtrend may be the right time to add resources if you want to be ready for the turnaround. ôWhen the market recovers, hiring people is going to be much more expensive,ö he says.

Among the people Barclays has hired in Japan are Kazutoshi Ohkubo, who will assume the position of head of equity sales for Japan, and Koichiro Chiwata, who joins as head of Japan equity research. Ohkubo and Chiwata, who will both assume the title of managing director, had corresponding positions at Lehman.

Okhubo, having spent part of his career at Nomura Research Institute, is an example of what several sources say is a noticeable trend in terms of the people who have chosen not to accept NomuraÆs generous offer of employment. They say people who have previously worked for Nomura have in many cases decided to move to other firms. One reason for this may be that they have taken a liking to the Wall Street culture at the US firm and would find it difficult to return to a Japanese employer.

Among the analysts who have joined this month are: Hidenao Miyajima, chief strategist; Fumiyuki Takahashi, quantitative strategy; Mikiya Yamada, chemicals; Masanori Maruo, utilities; Toshihide Yoda, pharmaceuticals; Junsuke Senoguchi, banking; Keiichi Yoneshima, internet; and Mia Nagasaka, entertainment.

Separately, Nomura said on Friday that it has appointed Sigurbjorn Thorkelsson as head of equity for Asia-Pacific including Japan, while Rachid Bouzouba will take up a corresponding position as head of equity for Europe, the Middle East, and Africa. Both of them previously worked for Lehman Brothers and will report to Hiromasa Yamazaki, who is head of global equity. Their appointments are effective as of November 1.

In a release, Nomura said the new senior managers will bring ôa wealth of global experienceö to its equity business both within cash and non-cash businesses, including derivatives, electronic trading, and prime brokerage, which will allow it to provide more value-added services and products to its institutional clients around the world.

Thorkelsson, who first joined Lehman Brothers in New York in 1992 as an equity derivatives trader, will replace Tomoyuki Teraguchi, who has been head of equities for Asia ex-Japan. Teraguchi will take up a new role as head of transition for Asia equities and will focus on driving the successful integration of the Lehman business into the firm. The fact that Thorkelsson will have responsibility for Japan as well as the rest of Asia is part of NomuraÆs aim to strengthen its pan-Asian equity business model by combining its equities platforms in Japan and Asia ex-Japan.

Having been away from Lehman for a while, Thorkelsson, an Icelandic native, rejoined the firm in 1998 to set up a structured products trading group. Via stints as co-head of US equity derivatives trading, head of equity derivatives trading for Europe, head of European equity derivatives and convertibles, he was named head of equities for Asia-Pacific in June 2007.
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