This month the firm has also brought on board Stephen Good as director and head of equity sales. Good has 15 years experience in Japan working for brokers such as Morgan Stanley, Deutsche Bank and Jefferies & Co. It has also hired former JPMorgan Asset Management veteran Neal Billows to run equity sales trading.
The firm has also made some related hires this month in London, where Coen Kluyver joined from ING Barings to run sales of Japanese equities and Jonathan Allum has been named Japan strategist.
The last gap to be filled in Tokyo is a research department. KBC is interviewing for up to six people to join the office's current 54 staff members. The focus will be on small and mid-sized companies. Having research will also allow KBC to pursue cash equities, and complements existing research operations in London and New York.
KBC sees the big challenge in Japanese equities is to resolve the enormous overhang held by domestic financial institutions, and hopes to make inroads helping banks dispose of cross-shareholdings through structured products. "We believe 15% of the market is for sale," Roccia says. "Financial institutions have been conducting block trades but they should be more creative, because the demand is there."
One product the firm believes can help many Japanese companies is the convertible exchange bond, known as CEBS, which are similar to exchange bonds in Europe but not to be confused with the retail-oriented "exchange bond" common in Japan, which is really a reverse convertible.
Mark Voumard, director and head of business development in Tokyo, says KBC has so far arranged $1 billion worth of convertible exchange bonds for the institutional market on behalf of Japanese companies such as Sony, NTT, Sumitomo Marine & Fire and Chugai Pharmaceutical. These were based on models developed in Europe, where many companies are also extracting themselves from cross-shareholdings.
KBC Securities Japan has an interesting pedigree. A London-based fraternity of brokers and investment banks made markets in Japanese equity-linked products during the mid-1980s. At its peak Japanese covered warrants was a $20 billion business, and a very volatile one, because the trading took place when Japan's market was closed. One player was the investment bank arm of DE Shaw, a New York-based hedge fund.
As corporate Japan's troubles mounted in the 1990s, issuance fell, and by 1996 the London market-making gig was up. While most of the big prop desks redeployed staff into other activities, the people at DE Shaw maintained its focus on Japan but also diversified into investment banking. It had amassed considerable experience with Japanese corporations and found a niche advising them on structuring capital market transactions.
This was capped by obtaining an underwriting license in Japan, allowing KBC to solicit these companies directly as a sole lead manager. It won its first mandate in March 1999. In November of that year, Brussels-based KBC Bank purchased the DE Shaw financial products group, creating KBC Financial Products Group, including KBC Securities Japan.