Investment Banking Past, Presence

							Masami Tada
By Geraldine Lambe | Published: 01 February, 2010




Masami Tada, chairman and CEO of Daiwa Capital
Markets Europe
The chairman and CEO of Daiwa Capital Markets
Europe talks about the business's shift from Japanese
securities house to pan-Asian investment banking
presence with a European footprint. Writer Geraldine
Lambe
The past 18 months have marked something of a renaissance for the international
ambitions of Japan's financial institutions. It began with Sumitomo Mitsui taking a
stake in Barclays, followed by Mitsubishi UFJ's rescue of Morgan Stanley through a
vital 20% stake in the bank at the height of the financial crisis. Then Nomura cannily
snapped up Lehman Brothers' Asian and European businesses. The moves inspired
headlines that the world was witnessing a rebalancing of power in global banking.
In a rather quieter way, Daiwa Securities Group - the second largest broker in Japan -
is in the middle of its own transformation. It is revving up its investment banking
business and turning itself from a predominantly Japanese securities house into a pan-
Asian investment banking presence with a sizeable European footprint. In May last
year it acquired Close Brothers Corporate Finance (CBCF), the corporate finance arm
of Close Brothers, the biggest remaining London-listed investment bank, for £75m
($122.3m), including £8m of working capital, bringing 30 senior dealmakers in its
London office, and 240 bankers across Europe.

In September last year, Daiwa reasserted its independence, buying back Sumitomo
Mitsui Financial Group's 40% state in Daiwa Securities SMBC, ending a decade-long
partnership. To mark its newly expanded autonomy, the business was renamed Daiwa
Capital Markets on January 1 this year.

Japan's brokers face strong competition from global players such as UBS and
Goldman Sachs, which are well entrenched in Asia and have built relationships in
China and India where equity markets are booming.

Shigeharu Suzuki, president of Daiwa Securities Group, was the first to articulate the
need for Asian expansion and the firm's determination to succeed on its own, saying
last year: "We've clearly shown our intent as a global force... Along with China and
India, we're also considering breaking into Indonesia and other areas where we don't
have a strong presence."

Masami Tada, appointed chairman and CEO of Daiwa Capital Markets Europe with
additional responsibility for Daiwa's Middle East operations in November last year,
admits that Daiwa has been forced to expand and evolve.

"The traditional Japanese broker business is increasingly competitive - margins are
still shrinking for everyone and absolute flows have decreased," says Mr Tada. "With
European, US and Asian investors arguably less interested in buying Japanese equities,
we decided to shift our equities business to a truly pan-Asian financial markets focus
and, additionally, grow our investment banking and derivatives in London and Hong
Kong, again based on a pan-Asian philosophy."

The investment bank has doubled the capital base of its Hong Kong-based
headquarters to $2.1bn, and has plans to almost double the headcount there, including
300 hires planned for equity and derivatives, and 100 mergers and acquisitions
(M&A) bankers, who will work closely with the CBCF business headquartered in
London. Mr Tada says he is unable to name any new hires in Asia, but says they are
in the pipeline.

The bank is further ahead with its plans in Europe, and has taken advantage of the
upheaval in investment banking during the financial crisis to boost its European
headcount by 25% since July 2007 - excluding the CBCF acquisition.

Tools for the job

The new derivatives operation is a major element of Daiwa's growth strategy and is
focused on equity derivatives, foreign exchange, commodities and rates products. The
business, which went into full operation in October last year, is spearheaded by
Dominique Blanchard, who joined as head of derivatives from Calyon in May 2008.
The bank has also hired Clarke Pitts from Japanese rival Mitsubishi UFJ Securities to
head up its equity derivatives business and Matthew Hargreaves, also from Calyon, to
build the derivatives infrastructure team.

Sitting within the derivatives franchise is equity finance, another major business line
for the bank that it began bolstering in 2008. Senior hires include Charles Day,
formerly head of synthetic equity at Lehman Brothers, as head of global equity
finance; Sangjoon Kim, formerly head of Japan equity exotics and hybrids for
JPMorgan Securities, as head of equity derivatives trading; and Andrew Cope, who
joins as head of secured equity financing from Barclays Capital, where he was head of
the global equity finance department for Europe and Asia.

Mr Tada says the investment bank has already built a sizeable derivatives business out
of London over the past 12 or 14 months, and is now close to fully implementing all
the necessary infrastructure to make the bank competitive in the institutional market.
"The next stage of development is to build out our Asian derivatives operations,
which will also focus on products that are important for the retail market, such as
exchange-traded funds and warrants. We have already launched our electronic trading
platform for cash and listed derivatives."

He says that a sign of the bank's commitment to building its Asia business and the
importance of the Asian region was Mr Blanchard's relocation in January to its Hong
Kong office.

Daiwa's strategy is less aggressive than Japanese rival Nomura - Mr Tada defines it as
"mid-risk, mid-return", and stresses that the bank has "no intention of adopting the
high-risk strategy or culture of an American bank". However, he believes the
acquisition of CBCF is a very significant step in the 45-year history of Daiwa in
Europe.

"CBCF will help us to increase the amount of business originated in Europe and to fill
the demand by European companies which are interested in acquiring small to
medium-sized businesses in Asia, and vice versa," says Mr Tada. "We knew that if we
wanted to build a significant M&A and corporate finance presence we would have to
acquire an existing operation. CBCF is a good fit."

CBCF's restructuring business has recently been involved in some high-profile
restructuring deals, including advising Eurobond holders at Taylor Wimpey and
stricken subprime lender Cattles. In 2008, it worked on 127 acquisitions and disposals
- much of it within the private equity space - but it suffered when deal volumes
collapsed during the financial crisis and leveraged finance markets evaporated,
decimating private equity-led deal flow.

The Daiwa deal has an unusual set-up. CBCF will be run as a standalone subsidiary to
Daiwa Capital Markets, although there is talk of it being rebranded, both to reflect its
new ownership and prevent any confusion with the remaining Close Brothers'
business. The aim is that CBCF will co-operate closely with Daiwa and its US
boutique, Sagent Advisors, instead of being integrated.
Long-term view

Mr Tada has no illusions about new corporate finance business appearing overnight.
"This kind of deal flow naturally takes a long time to generate," he says. "Since the
acquisition in May last year, we are only just beginning to see deals coming through."
The bank was not able to give details of early-stage M&A deals that are in the
pipeline.

Whenever a Japanese company makes a significant foreign acquisition, a discussion
about culture clashes ensues. There is currently hot debate about whether Nomura will
be able to overcome cultural differences in order to convert its undoubted coup in
acquiring Lehman's business at a knockdown price into the weighty investment bank
that its constituent parts represent.

Mr Tada says he does not anticipate cultural barriers being a real problem, citing the
non-Japanese heads of many business lines and the international nature of the
European board. Aside from Mr Tada and president and COO Mikita Komatsu, this is
populated by Europeans, many of whom are longstanding employees of the bank.
This includes vice-chairman Wilfried Schmidt, who joined Daiwa in 1990 and is a
fluent Japanese speaker, and Michael Botevyle, head of human resources, who has
been with Daiwa since 1994. The other members are Stephen Krag, who joined in
2009 as CFO from HBOS, where he was COO and finance director for the bank's
treasury business, and Richard Farrant, the only non-executive director on the board,
who joined it in 2007 having spent several years at the Bank of England and as
managing director and COO of the UK's Financial Services Authority.

Daiwa may not be making the boldest move to grow its business, but the firm has
proved in the past that it can convert one business into another, and make smart forays
into new markets.

As an established London-based yen bond house in the late 1980s, Daiwa found its
way onto the privatisation mandates of Margaret Thatcher's government - working on
the privatisation of British Telecom, Scottish Water and BP. Then, it conceived of a
new structure to aid liquidity - the public offering without listing - which enabled
foreign issuers to offer equity to the Japanese public without having to list on the
Tokyo Stock Exchange, which was both expensive and time consuming. The success
of these deals for the UK government led to further privatisation work in Germany
(for Deutsche Telekom), Italy (Enel) and France (EDF).

At the same time, Daiwa entered the newly opening markets in eastern Europe, where
it could operate on an equal footing with bigger Western banks. Under the guidance
of former diplomat Mr Schmidt, Daiwa secured mandates such as the privatisation of
Polish bank BPH - including its eventual sale to HVB - and in Romania Daiwa
advised BRD and later BCR, representing the largest ever M&A deal worked on by a
Japanese firm outside of its home market.

Now, as then, Daiwa must show that it can punch above its weight. Mr Tada is
confident that the bank can do so. "We are attracting senior bankers who are very
interested in our growth strategy. We have been doing this for the past 18 months in
Europe and will continue to do so in London and, now, in Asia. Our history shows
what Daiwa can achieve."

Career history

Masami Tada

2009 - Appointed chairman and CEO, Daiwa Securities SMBC Europe, which later
became Daiwa Capital Markets Europe.

2008 - Moved to Daiwa Fund Consulting as president.

2005 - Promoted to executive officer investment banking, Osaka.

2004 - Promoted to executive officer and head of equity sales.

1999 - Joined Daiwa Securities SB Capital Markets (which later became Daiwa
Securities SMBC) as general manager, institutional sales.

1998 - Posted to Daiwa Europe in London, in equity sales.

1995 - Returned to Daiwa Securities Japan, and promoted to general manager,
International Investment Service Department.

1991 - Second posting to Daiwa Europe in Germany, promoted to head of equity and
bond trading.

1986 - Returned to Daiwa Securities Japan, as an equity and bond trader specialising
in non-resident products.

1985 - Posted to Daiwa Europe in Germany in equity sales and trading.

1983 - Joined Daiwa Securities in the overseas investment consulting department.

1978 - Joined Chase Manhattan as a graduate trainee, qualifying as a credit analyst.