As Japan's giant Nomura Securities Co. has staged a sharp rebound in recent months from its dismal performance in 1998, the firm's U.S. operation is poised to stick a couple of toes, if not an entire foot, back into the waters that were the source of some of its grandest successes and failures during that decade: the commercial mortgage-backed securities market.

On paper, the Tokyo-based parent is in solid form. For the nine months ended December 31, Nomura posted net income of 128.95 billion yen ($1.19 billion) on net revenue of 583.37 billion yen. By contrast, in the same period in 1998, the company reported a net loss of 466.90 billion yen on revenue of 228.1 billion yen.

With Nomura's apparent return to life, following the drubbing it took from the Asian currency crisis and the bottom dropping out of the commercial mortgage market, rival CMBS bankers said that Nomura's U.S. subsidiary may now be on the hunt for top-name talent to fill leadership positions in its CMBS trading business.

"They're looking to fill long-vacant management positions, looking to bring good people on board," said one source familiar with the shop, who speculated that the firm in particular may be looking for a head of CMBS trading. Other sources said that Guy Hands, who has won a sterling reputation for setting up a top-notch shop for Nomura in London, may be involved in beefing up operations in New York. A Nomura spokesman declined to comment on the situation.

Despite the hunt for talent, however, there aren't any other concrete signs that Nomura is returning to the market any time soon. After the 1998 losses, Nomura sold off its commercial mortgage servicing business and dissolved its once-powerhouse commercial mortgage origination operations. Its presence in the CMBS market is mainly felt now in the secondary market, where it helps trade previously-issued Nomura deals.

Once Was Camelot

Nomura has been a ghost of its former self in the CMBS market since the dissolution in early 1999 of its Capital Company of America unit, which handled the firm's extensive CMBS origination and underwriting capabilities and once was one of the Japanese brokerage's prime earners.

Capital America had a reputation for being the jet-set of the commercial mortgage market, as head Ethan Penner would routinely entertain clients with exclusive concerts by rock musicians like Sting and the Eagles, as well as taking prospective investors on lavish, extensive roadshows, sometimes by private plane. As it prospered, the shop expanded to more than 400 employees and was originating up to $1 billion in deals per month.

The good times came to an end in 1998, when the Russian currency crisis knocked out the commercial mortgage-backed market, exacerbating investor concerns about the credit quality of some Nomura deals. Capital America had loaned money to real estate players at very low rates, expecting to make it back in the securitization markets. When those markets fell apart in mid-1998, the firm was left holding the bag.

Capital America, whose parent was already reeling from the Asian currency crisis of 1997, wound up getting hit with severe losses. Nomura disclosed that Capital America had suffered pre-tax losses of about $860 million due to the market meltdown.

Penner left in September 1998 and, following a thorough review by Hands' London-based Principal Finance Group, stripped power from Penner's lieutenants, co-chief executives Boyd Fellows and Brian Pilcher. Both officials soon departed, replaced by current CEO Michael Hurdelbrink.

The departure of such epochal figures as Penner inspired eulogies about the end of a glamorous but costly era in commercial mortgage securitization. The recent departure of Credit Suisse First Boston's Andrew Stone, a similarly legendary figure, was considered the final chapter in the story.

These days, of course, a resurgent Nomura would have to contend with a far different CMBS environment. Buy-side concerns about deal quality and a general taste for large, liquid offerings have made "fusion" deals and deals jointly offered by several CMBS shops very popular for investors. Tiering has become much sharper as well, as investors have learned to discriminate against shops with shady past histories.

Nomura's name in particular was tainted for investors for much of 1999, with deals trading at up to 50 basis points over comparable bonds. Could the shop make as solid a comeback with CMBS investors as its parent has in the general financial markets? It's an open question, sources said.

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