Last Updated Nov 18, 2009 4:52 PM EST
Here at BNET Finance, my colleague Alain Sherter and I have been some of the few pundits who have bothered banging on throughout the month about the phenomenon of share sales in the financial services industry and all the various potential consequences of such (you can see all the articles in the links at the bottom). Indeed, this is a trend that was largely being ignored until Nomura stepped up to the plate this week.
The unprecedented attention the Japanese bank has gained is mostly a result of the humongous size of the proposed capital raising, which at $5.6 billion, will dilute existing shareholders around 22.2 percent. It will also take Nomura's capital raising total to $8.5 billion in 2009.
Needless to say, shareholders are exasperated and the market in general thinks the bank is somewhat out of control, more like its giant jellyfish namesake than any large-scale financial institution (pictured). That was evinced by a 16 percent plunge in the firm's share price in Tokyo Friday, constituting its maximum daily limit (Asian shares often have daily volatility limits imposed on them).
A closer look at the details reveals that Nomura may be getting a little too beaten up, however. It's true that most U.S. bank share sales are particularly unattractive, since many of them are really just ways for the firms to raise operating capital to see them through the next 12 - 18 months, and won't be used to expand in any meaningful sense.
In Nomura's case, that's not so. The Japanese bank is using a strong market to raise an inordinate amount of cash so that it can role its operations out worldwide. Among the firm's list of aims for employing the capital are investing in more technology, to developing an Islamic finance division, through to expanding its U.S. reach. With so many American banks still on government life support, there has never been a better time to start zapping market share stateside.
In a landscape of low-performance, uncontroversial domestic competitors, Nomura is the exception: hence its acquisition of various bits and pieces of Lehman Brothers last year, and its willingness to pay outsize sums for foreign talent (not common in Japan). The bank has begun several hedge fund products, in addition to beefing up its investment banking operations this year. So far, the strategy seems to be working: Nomura has turned a profit of $125 million in the second quarter vs. a $7.5 billion loss in 2008.
These are boasts few financial institutions can honestly make right now.
Go to the latest installment on Nomura here.