HONG KONG/TOKYO -- Anyone who was working on Wall Street 30 years ago likely remembers "The House of Nomura." Written by Albert J. Alletzhauser in 1990, the book conveyed just how extraordinarily dominant Nomura Securities was in bubble-era Japan.
The source of that strength was an overwhelming sales force in both the retail and wholesale markets. When the bubble burst in the early 1990s, however, that strength became a target of criticism in Japan. The company was accused of employing overly aggressive sales tactics -- some transactions were later deemed illegal -- and as a result, most post-bubble Nomura chiefs were conservative leaders with little background in sales.
It took 15 years for Nomura to appoint another chief executive with a sales background, a fact pointed out in a Nikkei headline when Koji Nagai took over as group CEO of Nomura Holdings in August 2012.
Starting out in retail, Nagai moved into corporate sales midcareer, serving as manager of major branches in Osaka and Kyoto along the way. Throughout his career he has held to the belief that successful wholesale operations can be built on a strong retail foundation.
In a recent interview with the Nikkei Asian Review, Nagai made it clear that he is sticking with that philosophy as he oversees Nomura's expansion into China.
"In China, we will build a retail distribution platform and put our wholesale business onto it," he said.
Nagai believes this approach will set Nomura apart from U.S. rivals such as Goldman Sachs and Morgan Stanley which, he says, lack retail sales forces in the country.
"Many Western players are targeting Chinese companies with wholesale operations -- for example IPOs -- but they are trying in vain to be profitable through those businesses. This is mainly because they don't have a wide distribution network in China."
"Many Western players are targeting Chinese companies with wholesale operations -- for example IPOs -- but they are trying in vain to be profitable through those businesses"Koji Nagai, Nomura Holdings group CEO
That does not mean, however, that Nomura plans to replicate the way it operates in Japan, where it has a network of 156 branches.
"It's not about opening stores nationwide," Nagai said. "We have no plans to set up hundreds of stores [in China]. We will open some, mainly in big cities where the number of wealthy people may be growing, but that's it."
A major strategy of Nomura's wholesale operations is cross-border deals between Asia and the U.S. and Europe.
While Nagai did not give any concrete examples of what this strategy will entail, M&A deals like one the company recently facilitated seem a likely candidate.
In December 2017, China's Zhejiang Geely Holding Group decided to buy a stake in Swedish truck maker AB Volvo. Nomura purchased Volvo shares from investor Cevian and, after the purchase received regulatory approval, sold them to Geely.
This kind of "out-out" transaction -- where both the acquirer and target are non-Japanese companies -- is among the most difficult for Japanese financial institutions to pull off, due largely to a lack of overseas connections. Nomura, however, managed it, and the company reckons that having a strong foothold in mainland China would give it an edge in similar East-West transactions in the future.
And while the trade frictions and deteriorating political relationship between the U.S. and China may become a risk factor even for a Japanese financial institution, Nagai did not seem overly concerned about the issue.
Many believe the U.S. is trying to remove China from the global supply chain, and Beijing for its part has seemed keen in recent months to improve trade relations with other countries -- including Japan.
Nomura has been described as one of the most global-minded financial institutions in Japan. Established in 1925, it opened a New York representative office in 1927. Its expansion in Asia started in 1939.
As Nomura, it flourished in the U.K. during Japan's bubble years and later in the U.S. in the late 1990s, when the securitization of real estate took off. These glories were short lived, however, because of a one-legged management strategy -- in both markets, the company depended solely on the unstable wholesale business.
The question now is whether what was once the "world's most powerful house" can build a lasting foothold in its own backyard.