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Western Europe has also given Nomura the opportunity to move into commercial banking. In the U.S. and Japan legal barriers separate investment from commercial banking, but in London there is freewheeling competition between financial institutions. Says Andreas Prindl, a 20-year veteran of Morgan Guaranty Trust who joined Nomura two years ago to set up its Bank International in London: "To be competitive, we have to offer a wide range of banking activities." Those include foreign-currency trading, asset management and commercial-project financing. Since the bank's opening, its assets have grown from $70 million to $2.5 billion.
Wall Street is another matter: Nomura has yet to hit its stride there. Says Professor Samuel Hayes of the Harvard Business School: "The U.S. investment banks are world-class leaders. For Nomura to come in and compete head to head with them on their home turf is daunting. The only way they can succeed is by acquiring the same skills." Undaunted, Nomura has sharply expanded its U.S. operation, based at 180 Maiden Lane, near Wall Street. (Nomura also has branch offices in Chicago, San Francisco, Los Angeles and Honolulu.) Even before the Wasserstein, Perella deal, the company had invested $230 million in its U.S. subsidiary over the past three years, increasing its staff there from 200 employees in 1984 to 635 in 1987. Last February, though, Nomura laid off about 35 New York workers in response to the stock-market crash. The cost of expansion has made for lean profits in the U.S. In 1987 the American operation barely broke even, and in early 1988 it lost $1 million a month before returning to the black in June.
The segment of the U.S. market in which Nomura stands tallest is the Treasury-bond business. Last spring, at an auction of $8.5 billion worth of 30-year Treasury bonds, Nomura bought about $2 billion. A heavy purchaser of U.S. Government bonds since the early 1980s, Nomura in 1986 became one of the first two Japanese securities firms -- Daiwa was the other -- to be granted the status of primary dealer. That permits Nomura, along with 43 other primary dealers, to deal in U.S. Government securities directly with the Federal Reserve. The firm can then sell the issues to investors, mostly Japanese, at the lowest possible prices.
While the October 1987 crash has tempered foreign interest in the U.S. stock market, Nomura still does sizable trading on the New York exchange, largely because of the "dividend-capture" plays favored by Japanese insurance companies. One of these firms, for example, may buy millions of shares of a company scheduled to declare a dividend and then immediately resell the shares after the payout is made. Reason: Japanese law allows the insurance company to distribute dividend earnings to clients but does not allow income from capital gains to be paid out. On some days, such trades enable Nomura to account for 5% to 6% of the volume on the Big Board.
Nomura's most glaring weakness in the U.S. has been merger-and-acquisition work. That is hardly surprising, since takeovers are relatively uncommon in Japan. With Wasserstein, Perella as a partner, Nomura can now enter the business in a big way. As part of the deal, Nomura will send employees to the U.S. firm to learn all about the merger game. Nomura can also greatly expand its client base by making use of Wasserstein, Perella's contacts with corporate America.