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Nomura grabs Lehman's Asia business

Japan's Nomura Holdings has reached a deal to buy the Asian operations of Lehman Brothers, a source said, outbidding other banks seeking to scoop up Lehman's Asia group on the cheap.

The source, who had direct knowledge of the deal, did not say how much it was worth, nor did he say if certain Lehman units were excluded from the agreement.

Lehman Brothers last week filed for bankruptcy protection after collapsing from exposure to risky subprime mortgage securities. British Bank Barclays struck a $1.75 billion deal to rescue Lehman's core US investment banking business, and signaled it might do the same for other units. The fate of Lehman's 3,000 employees in Asia remained unclear until Monday.

A source with knowledge of the matter told Reuters that Standard Chartered was also interested in Lehman's Asian assets. Barclays was interested in parts of Lehman's European equities and equity capital markets businesses.

Lehman, once the fourth-biggest US investment bank, filed the largest ever US bankruptcy case after collapsing from exposure to risky securities backed by subprime mortgages.

Lehman's net revenue from Asia-Pacific in January-June was $1.4 billion, nearly matching the whole of 2006 and accounting for roughly 20% of the bank's overall revenues.

Nomura executives visited Hong Kong over the weekend to propose buying Lehman's flagship stockbroking and investment banking divisions in Asia, according to the sources, who asked not to be identified as the information is not public.

“Nomura's proposals are the most competitive and put it in the leading position,” one of the sources said. The sources declined to be identified due to the sensitivity of the issue.

Wataru Kasatani, senior financial analyst at Meiji Dresdner Asset Management, said Nomura has been aiming to expand its investment banking business globally.

“Nomura's global hub for this business is London, rather than New York, so bidding for Lehman's European operation makes sense,” he said. “Lehman's Asia operation will also add value to what Nomura has been doing in Asia.”

A source close to the matter said separately that Samsung Securities officials were also in Hong Kong over the weekend to discuss investing in Lehman's Asian operations.

Lehman has around 3,000 employees in Asia in 10 offices, with roughly 1,300 in Tokyo and 800 in Hong Kong.

The Tokyo office has a large fixed income group, while Hong Kong mainly houses M&A, equity capital and debt capital bankers. In Singapore, Lehman employs 250, mostly focused on commodities and trading.

Lehman ranks 2nd behind JPMorgan in year to date M&A rankings in Asia ex Japan, with 15 deals worth a total $32 billion, according to Thomson Reuters.

Shares in Nomura, regarded as a domestic powerhouse, rose 8% in Tokyo on Monday, and CITIC jumped 10% in Shanghai. In Seoul, Samsung Securities added 1%, outperforming a 0.6% gain on the broader index

Last week, an unsourced Business Standard report said Indian outsourcing firms Wipro Technologies, and Copal Partners may bid for Lehman's Indian back-office unit, which employs 1,200 staff providing equity research and analytics support for its M&A business.

Lehman hired investment bank Rothschild to advise it on the sale of its Asia operations, a person with direct knowledge of the sale process told Reuters on Friday.

KPMG was also involved in the talks after being appointed as provisional liquidator to Lehman's Hong Kong operations.

On Sunday, more than 100 angry Hong Kong investors, many of them elderly retirees, marched on government offices, calling for action after losing money on structured products linked to Lehman. They accused the government and local banks of failing to warn them of the risks involved.

PricewaterhouseCoopers is acting as administrator for Lehman's European business, and is expected to move quickly as delays would cause Lehman to lose customers and staff.

British Prime Minister Gordon Brown said on Saturday he was pushing the United States to help get $8 billion from Lehman to its staff in Britain.

Administrators winding up Lehman's European business have questioned why that amount was transferred to New York just before the bank collapsed. There have been fears among Lehman's 4,500 staff in London they may not get their final pay packets. (Reuters)