An exiled fixed-income market veteran in the last two months has laid plans for its return in the midst of a turbulent and downcast year for products like commercial mortgage-backed securities.
Nomura Securities International's recent hire of longtime Goldman Sachs and Morgan Stanley Dean Witter veteran Alex Noujaim to head its U.S. fixed income division has rejuvenated the company's once-potent but recently dissipated structured finance shop. Noujaim has made roughly 15 hires since May, poaching pros from Donaldson Lufkin & Jenrette and PaineWebber Group, among others, and will keep his trigger finger active in the months to come.
"We're keeping a lot of headhunters busy," said Noujaim, who serves as executive managing director and head of fixed income for Nomura.
Noujaim has just begun rebuilding Nomura's fixed income division and said any long-term strategies about which sectors to target have yet to crystallize. "It's a question of finding the sweet spot," he said. "It's about finding businesses we can be profitable in and at the same time helping our clients to be profitable. That will likely involve higher spread product and information intensive businesses."
But Nomura will definitely attempt to regain its mastery of commercial mortgage-backed securities, a sector it ruled in the mid-1990s and in which it fell from grace following the market's deterioration in 1998.
While in 1998 the shop was ranked fourth among CMBS underwriters, it has all but abdicated its role in that market for much of the last two years, analysts said. Its overall MBS standings are meager year-to-date, according to Thomson Financial Securities Data. The shop is ranked 24th for the year with $44.5 million in deals, compared with $5.1 billion, ranking 19th, for all of 1999. In 1998, its last major-league MBS year, Nomura was in fifteenth place with $18 billion in deals underwritten.
But Noujaim wants to be back in the winner's circle before too long. "It should be easy to recapture that position," he said in regard to the CMBS market. "I have as much balance sheet here as any other fixed-income shop on Wall Street. We are the second largest securities firm in the world in terms of market cap and equity cap."
While Nomura may explore the ABS, high-grade and high-yield bond markets, market observers said its best shot at regaining sizeable market share is via CMBS, the securities Nomura has most been associated with for the last decade.
A number of CMBS players have a vested interest in a refurbished Nomura. Because the shop via its now-defunct origination arm issued so much CMBS paper through much of the 1990s, many top investors and Wall Street players have a bundle of old Nomura paper still on their books. A new and improved Nomura on the secondary trading side could greatly improve the liquidity of such bonds, one trader said.
Nomura CMBS were considered damaged goods by some traders in 1999 and early this year, at times trading 50 basis points or wider to comparable bonds, but that spread disparity has greatly diminished in recent months.
The shop already has some strategies underway. For example, Nomura plans to fully exploit its hometown advantage in this year's expected boom in Japanese CMBS. According to Moody's Investors Service, Japan s 18-month-old CMBS market is expected to grow fourfold in 2000 to between 600 billion ($5.5 billion) and 700 billion yen ($6.4 billion) from 151 billion yen ($1.4 billion) in 1999.
With international CMBS making up a greater percentage of overall CMBS issuance, a shop with a solid chunk of a vibrant sector like Japanese commercial mortgages could pole-vault into prominence very easily, bankers said.
The potential for a Japanese CMBS and ABS boom has not only inspired Nomura to get back in the game. Daiwa Securities Co. has recently revived its once-defunct U.S. fixed-income shop to be ready for deal opportunities, while American shops like Bear Stearns & Co. and Lehman Brothers Inc. are fighting tooth and nail to get a piece of the Japanese real estate business.
Nomura's return to life comes after some controversy-packed down years that had some players wondering whether its Tokyo-based parent company would wash its hands of the U.S. fixed income business.
Nomura, Japan's largest brokerage firm, slashed its U.S. operations in 1998 and 1999 after losing more than $2 billion in the real-estate lending business, having fallen prey to the credit liquidity crunch of mid-1998 that killed the CMBS' market's growth surge and ultimately wiped out several lenders and conduits. After the departure of its head Ethan Penner, Nomura's stand-alone commercial loan originator Capital Co. of America was folded and its holdings liquidated.
Given its ghost presence in the markets for much of the last two years, some rival bankers had written off Nomura altogether. "It really looked like a goner for a while," one banker said. Indeed, Nomura's retreat from the U.S. markets in 1998 was paralleled by a number of foreign players, including Daiwa and Union Bank of Switzerland.
But the winds changed at the end of last year when Nomura's parent company, Nomura Securities Co., said it would inject about $550 million into its U.S. holding company, Nomura Holding America Inc.
Following the cash infusion, rumors hit the Street early this year that Nomura had begun to sniff around for talent to re-staff its division, especially in CMBS. In late March, Nomura lured Noujaim away from FN Capital, a Rye, NY-based hedge fund he founded, and gave him a mandate to rebuild the shop.
The New Team
Noujaim has assembled a team of former Capital Co. veterans and a mix of pros around the Street and in Europe, and shows no signs of stopping his hiring spree any time soon.
Perhaps his most notable hire has been Josh Edelson, who was poached from DLJ where he was head of high-grade sales. Edelson will be national sales director for Nomura, Noujaim said. Tara Tolan, a PaineWebber sales veteran, has also joined as VP in sales.
The shop hired David Berning from Compagnie Financiere de CIC. Berning is a 21-year veteran of CIC, most recently serving as senior vice president and treasurer. At Nomura, Berning will be division head of risk. The shop continued its French hunting season with the hire of Becker Drane, a derivatives pro from Paribas. Drane is slated to run fixed income option trading for Nomura.
Noujaim also retrieved David Jacob, one of the most respected CMBS analysts on the Street, from the defunct Capital America and named him as a managing director and head of structuring and research. Another Nomura veteran, Lynn Tong, has signed on as a senior structurer.