Nomura

Nomura (officially, Nomura Holdings, Inc.) is Japan's largest and most famous investment bank and brokerage group. Think of it as the Goldman Sachs or Morgan Stanley of Japan, a financial behemoth with a global reach. Founded in Osaka in 1925, it has grown from a small securities dealer into a sprawling financial services firm. Its business is split into three main parts: a massive retail network serving millions of individual investors in Japan, an asset management arm that creates and manages investment funds, and a wholesale division that provides classic investment banking services like advising on M&A deals, underwriting IPOs, and trading securities for big institutions worldwide. Nomura made global headlines in 2008 when, in a bold and ambitious move, it acquired the Asian and European operations of the collapsed US investment bank, Lehman Brothers. This acquisition instantly transformed Nomura into a major global player but also came with significant integration challenges and risks that have shaped its story ever since.

Nomura's story is one of ambition and resilience. It was founded by Tokushichi Nomura II, an heir to a wealthy stockbroking family, who spun it off from the securities division of his family's Osaka Nomura Bank. Its early growth was tied to the pre-war Japanese industrial conglomerates known as zaibatsu. After World War II, Nomura played a central role in rebuilding Japan's capital markets and became the undisputed leader in the country's securities industry. The firm's international ambitions grew throughout the 20th century, but the 2008 global financial crisis was its defining moment on the world stage. As Lehman Brothers imploded, Nomura saw a once-in-a-generation opportunity. It scooped up Lehman’s operations across Europe, the Middle East, and Asia for a symbolic $2, effectively buying a top-tier global investment banking franchise overnight. While the move gave it immense scale, melding the aggressive, deal-driven culture of Lehman with Nomura's more traditional Japanese approach proved to be a complex and costly endeavor.

Nomura’s vast operations can be simplified into three core businesses that work together.

This is Nomura's powerhouse in its home market. With a network of branches across Japan, this division provides financial consulting, stocks, bonds, and investment trusts (similar to mutual funds) to millions of individual Japanese investors. It is the foundation of the firm's stability and brand recognition in Japan.

This division is the money manager. It creates and manages a wide array of investment products, from traditional mutual funds to ETFs, for both individual and institutional clients globally. It aims to grow its clients' capital by investing across different asset classes and geographies.

This is the global face of Nomura and the part that competes directly with Wall Street's giants. It's the engine for large-scale corporate and institutional finance, offering services such as:

• Advisory: Providing strategic advice to corporations on mergers, acquisitions, and restructuring.
• Underwriting: Helping companies raise capital by issuing new stocks and bonds to the public.
• Sales & Trading: Acting as a market-maker, buying and selling a vast range of financial instruments—including equities, bonds, currencies, and complex derivatives—on behalf of its clients and for its own account.

For a value investor, analyzing a global investment bank like Nomura requires a healthy dose of skepticism and a sharp eye for risk.

Investment banking is a brutally cyclical business. Profits can soar during economic booms when markets are hot and M&A activity is high, but they can evaporate just as quickly during downturns. This earnings volatility makes forecasting difficult. Furthermore, the business carries significant inherent risks. A stark reminder of this was the 2021 collapse of the family office Archegos Capital Management, which cost Nomura nearly $3 billion. This event highlighted the dangers lurking in the firm's prime brokerage business and served as a painful lesson on risk management for its investors.

Does Nomura have a durable economic moat? It's a mixed bag.

• Yes, in Japan: Its brand, history, and unparalleled retail distribution network give it a formidable moat in its home market. No foreign competitor has come close to challenging its dominance there.
• No, internationally: Outside of Japan, the moat all but disappears. The global investment banking landscape is fiercely competitive, with Nomura battling against better-capitalized American and European rivals. It's a tough field where scale, reputation, and talent are key, and Nomura has consistently struggled to achieve sustainable profitability in its international operations.

When valuing a bank like Nomura, the standard price-to-earnings (P/E) ratio can be misleading due to volatile earnings. Instead, value investors often focus on the following:

• Price-to-Book Value: The price-to-book value (P/B ratio) is often a more reliable metric. A low P/B ratio (below 1.0) can suggest that the stock is undervalued relative to its net assets. For years, Nomura has traded at a significant discount to its book value, reflecting the market's concerns about its profitability and risk profile.
• Scrutinize the Balance Sheet: An investor must look beyond the simple P/B ratio and dig into the quality of the assets on the balance sheet. How much is tied up in hard-to-value, illiquid securities? What is the firm's exposure to risky loans or derivatives?
• Return on Equity (ROE): Consistently low ROE is a red flag, suggesting the company is not generating adequate profits from its shareholders' capital. This has been a persistent challenge for Nomura's international business.

In essence, Nomura can be seen as two distinct companies: a stable, wide-moat domestic champion and a riskier, more volatile global investment bank. Any potential investment requires a deep understanding of this duality and a price that offers a substantial margin of safety to compensate for the inherent risks of the global banking game.