IFR Asia - 22.09.2018

Upfront

OPINION INTERNATIONAL FINANCING REVIEW ASIA

A Lehman legacy

I

t’s fair to say Nomura’s purchase of Lehman Brothers in

Europe and Asia, 10 years ago this week, did not work

out as well as the Japanese brokerage had hoped. But it’s

also unfair to pin the blame entirely on cultural differences:

this marriage was doomed from the start.

A decade after taking on thousands of Lehman bankers

in the wake of the collapse, Nomura has little to show for

ITû7ITHûTHEûBENElTûOFûHINDSIGHTûHOWEVERûITSûUNLIKELYûTHATû

ANYONEûELSEûWOULDûHAVEûFAREDûBETTER

,EHMANSûBANKRUPTCYûMADEûTHEûlRMSûRISK

TAKINGûPROPû

trading culture unsustainable. Former staffers who joined

Nomura in the acquisition complain that there was too

MUCHûOVERSIGHTûFROMûTHEIRûNEWû*APANESEûBOSSESûANDûCO

heads, but allowing Lehman execs to carry on as if nothing

HADûHAPPENEDûWASûNEVERûGOINGûTOûWORKûnûNOûMATTERûWHOû

was in charge.

,EHMANûMADEûMONEYûINû!SIAûESPECIALLYûINûlXEDûINCOMEû

BUTûITûWASûAûVERYû53

CENTRICûANIMALû/NCEûITûWASûSEPARATEDû

from its former headquarters, the Asian operations were

EFFECTIVELYûORPHANEDûMAKINGûITûHARDERûTOûSELLûINTOûTOûTHEû53û

HEDGEûFUNDSûTHATûHADûDRIVENûTHEûBUSINESSûFORûSOûLONG

!NDûCONSIDERûTHEûALTERNATIVESû/FûTHEûLOSINGûBIDDERSû

"ARCLAYSûWHICHûTOOKûTHEûCROWNûJEWELûOFû,EHMANSû53û

OPERATIONSûWOULDûHAVEûBEENûTHEûMOSTûOBVIOUSûlTû

ûHADû

regulators allowed it. But the UK lender expanded

AGGRESSIVELYûINû!SIAûFROMûûONLYûTOûSCALEûBACKûMOSTûOFûITSû

%#-ûANDû-!ûADVISORYûWORKûINûTHEûREGIONûlVEûYEARSûLATERû

as part of a global retrenchment.

3TANDARDû#HARTEREDûALSOûTHREWûITSûHATûINûTHEûRINGûINû

ûANDûHASûSUFFEREDûAûSIMILARûFATEû!FTERûMISSINGûOUTûONû

,EHMANû3TAN#HARTûWENTûONûTOûBUYûSTOCKBROKERû#AZENOVEû

!SIAûFROMû*0û-ORGANûINû.OVEMBERûûPARTûOFûITSûOWNû

EXPANSIONûINTOûFULL

SERVICEûINVESTMENTûBANKINGû3TAN#HARTû

CLOSEDûITSûCASHûEQUITIESûBUSINESSûINû

4HEûMOSTûOUTLANDISHûOPTIONûWOULDûHAVEûBEENû+OREAû

$EVELOPMENTû"ANKûWHICHûCONSIDEREDûINVESTINGûINû

,EHMANûBEFOREûITûWENTûBUSTû,EHMANSûIMPRESSIVEû+OREANû

CONNECTIONSûTHROUGHûFORMERû!SIAûINVESTMENTûBANKINGûHEADû

+UNHOû#HOûANDûOTHERSûMAYûHAVEûEASEDûTHATûPATHûBUTûSTATE

OWNEDû+$"ûCOULDûNEVERûHAVEûTOLERATEDûTHEûKINDûOFûRISKYû

DEALSû,EHMANûWASûSOûFONDûOFû

ûANDûTHEû+OREANûREGULATORSû

understandably scuppered that plan before it got off the

ground.

.OMURASûPURCHASEûWASûANûOPPORTUNISTICûMOVEûTHATû

appears hasty in hindsight, but it kept thousands of people

employed and made its global ambitions clear. As it again

BATTLESûTOûTURNûAûPROlTûOUTSIDEû*APANûINûAûVERYûDIFFERENTû

REGULATORYûANDûECONOMICûENVIRONMENTûTHATûDECADEûOFû

experience must count for something.

High-tech gifts

3

trange as it seems, China’s push for more technology

listings in the domestic market may be helping

companies raise more money in Hong Kong.

Take the curious case of WuXi AppTec, a biotech research

COMPANYûANDûTHEûlRSTûFORMERLYû53

LISTEDûSTOCKûTOûRELISTûINû

#HINAûTHROUGHûAû3HANGHAIû)0/

!PP4ECûRAISEDûABOUTû53MûINûITSû!

SHAREûLISTINGûINû-AYû

ANDûHASûALREADYûlLEDûFORûAû(ONGû+ONGû)0/ûTHATûCOULDûRAISEû

MOREûTHANûlVEûTIMESûTHATûAMOUNT

The company enjoyed some special treatment in China,

as regulators allowed it to jump the queue of companies

waiting to go public. But the process is also a warning that

OTHERûTECHûCOMPANIESûCANûEXPECTûANû)0/ûVALUATIONûFARûBELOWû

market prices.

#HINASûSECURITIESûREGULATORûHASûSHOWNûSOMEûmEXIBILITYû

ONûTHEûUSUALûXû0%ûPRICEûLIMITûANDûWASûATûONEûPOINTûCLOSEû

TOûAPPROVINGûAû#$2ûmOATûFROMûLOSS

MAKINGû8IAOMIû"UTû

regulators are far more worried about putting pressure on

a weak stock market than in allowing an issuer to meet its

fundraising targets.

Wuxi AppTec’s stock has more than quadrupled since its

3HANGHAIû)0/û%VENûIFûITûOFFERSûAûCHUNKYûDISCOUNTûTOûmOATû

INû(ONGû+ONGûTHATûBOOSTSûITSûCHANCESûOFûACHIEVINGûAûRICHû

VALUATIONûONûITSûINTERNATIONALûmOAT

This could be the best of both worlds for AppTec, which

was able to keep Chinese regulators happy and boost

its market cap before raising some real money in Hong

+ONGûWHEREûINVESTORSûAREûSNAPPINGûUPûINTERNETûSTOCKSû

BUTûHAVEûBEENûMOREûCAUTIOUSûWHENûITûCOMESûTOûBIOTECHû!û

SIMULTANEOUSû)0/ûISûCOMPLICATEDûANDûGOINGûPUBLICûINû(ONGû

+ONGûlRSTû

ûASû8IAOMIûDIDû

ûDOESûNOTûFACTORûINûTHEûSUPPORTûOFû

DOMESTICûRETAILûINVESTORS

!LLûTHATûISûGOODûNEWSûFORû(ONGû+ONGû)0/SûBUTûITSûHARDûTOû

imagine this is what China’s regulators had in mind.

Allowing Lehman execs to carry

on as if nothing had happened

WASûNEVERûGOINGûTOûWORKûnûNOû

matter who was in charge.