Can Nomura make its Lehman purchase work?

TOKYO — The acquisition by Nomura Holdings of Lehman Brothers's operations in Europe, Asia and the Middle East has given the Japanese brokerage firm the platform it needs to become a truly global investment bank.

Now comes the hard part.

Nomura, which bought Lehman's assets after it filed for bankruptcy last month, has just started the difficult task of integrating a diverse set of operations and melding the high-risk culture of Wall Street with its more conservative approach.

The reward, if Nomura can manage the transition well, would be an entry into the elite leagues of investment banking and significant expansion outside its mature home market.

But the company is stretching its cost base at a time of crisis within the financial industry, and will find it hard to keep the best of the 5,500 employees acquired as part of the transaction from fleeing to rival banks.

"It's difficult right now to say whether this deal will be a big positive for Nomura or not," said Azuma Ohno, an analyst at Credit Suisse. "The risk is that clients and key people will leave."

Nomura agreed to pay up to $525 million for Lehman's Asia-Pacific operations and a nominal fee of $2 for the European and Middle Eastern investment banking and equities arms.

The acquisition should fill several holes in Nomura's strategy.

It will allow it to make a full-fledged push into premium brokerage services, bolster its program-trading operations and land more lucrative contracts for advising companies on international deals.

Nomura is the leading stock underwriter and adviser for mergers and acquisitions in Japan. But it ranks outside the top 20 players elsewhere in Asia and Europe in advising on deals, while Lehman ranks ninth and seventh so far this year, Thomson Reuters data shows.

But moving up the rankings is only part of the equation.

Nomura, like other Japanese financial institutions, does not have much experience with big overseas acquisitions and may find it tricky to merge two different working cultures while also keeping costs from rising too quickly as it grows significantly in size.

"They do not have a really long or successful history outside Japan," said Yuin Lim, an analyst at CLSA, referring to Japanese financial companies. "They have not really built up the critical mass of talent or managers that they could really rely on overseas."

Nomura was the first Japanese securities company to establish an office outside Japan, 81 years ago. Before acquiring Lehman it had expanded to 18,000 staff in 30 countries, but the company still generates more than 90 percent of its revenue in Japan.

Nomura has been keen to reduce its reliance on its home market. It bought the electronic market broker Instinet for $1.2 billion in 2007 and recently considered taking a stake in the Indian financial services company Enam before talks broke down.

But the Lehman deal is on a completely different scale. The number of employees it absorbs could reach close to 8,000 if Nomura buys Lehman's back-office and information technology operations in India, as was reported Friday by the Nikkei business newspaper. A Nomura spokesman declined to comment on the report.

Nomura's gamble on Lehman comes as the stand-alone investment banking model is coming apart in the United States. But Kenichi Watanabe, who became Nomura's president in April, told the company's branch managers last week that he would map out a new business model that would help the company avoid Wall Street's mistakes.