Nomura Shoken Kabushiki Kaisha, 1-9-1
Telephone: (33) 211-1181
Fax: (33) 278-0420
Assets: ¥976 billion
Stock Exchanges: Tokyo Osaka Nagoya Amsterdam Luxembourg
SICs: 6211 Security Brokers, Dealers and Floatation Companies; 6221 Commodity Contracts Brokers and Dealers; 6159 Miscellaneous Business Credit Institutions; 6282 Investment Advice.
The Nomura Securities Company, the largest securities firm in Japan, has long been recognized as an industry pacesetter. Since, as The Economist has put it, "What Nomura does this morning, the rest of the Japanese securities industry will do after lunch," Nomura has played a key role in the development of the securities industry in Japan. The company has made great strides in the international arena as well. It was the first Japanese company to become a member of the New York Stock Exchange, in 1981, and has seen phenomenal success in the Euromarkets. Despite the numerous scandals that disrupted the Japanese securities market in the early 1990s, Nomura remains Japan's largest securities firm. Since it was established in 1925, Nomura has struggled through many economic and cultural changes in Japan, but it has emerged as a powerhouse not only at home but also in the international securities markets.
Nomura was incorporated in 1925, but its story begins much earlier. In 1872, four years after the Meiji Emperor reclaimed the Japanese throne and began an unprecedented reform campaign, Tokushichi Nomura opened the Nomura Shoten in Osaka, Japan. Nomura was a moneychanger. At that time there was no one single currency in Japan. Various gold, silver, and copper coins were appraised by merchants like Nomura, and their value was dictated by the current market price. But along with the Meiji Restoration came extensive monetary reforms, and Nomura's business changed rapidly as the Japanese industrial revolution came into full swing.
In 1878, Tokushichi Nomura had a son, Shinnosuke (later called Tokushichi II). In his youth, Shinnosuke Nomura assisted his father in the moneychanging business, but his interests lay in a field which was still quite new to Japan--stock trading. At age 19, after completing his studies at the Osaka Commercial School, Shinnosuke Nomura went to work as an apprentice at a small stock trading shop managed by his brother-in-law. Nomura's apprenticeship was cut short after only a few months when he was conscripted into the Japanese army for three years. When he returned home, however, Nomura resolved to take Nomura Shoten into the stock trading business.
During the 1890s the stock market in Japan was still a somewhat crude affair. Only a few joint-stock companies existed at all. Most shares were held by a handful of rich and powerful businessmen, and government regulation of the exchanges was virtually nonexistent. Price rigging and other corrupt practices gave stock brokers a bad reputation. Shinnosuke Nomura believed that through sound, ethical business practices, Nomura Shoten could win the confidence of investors over the long haul. Under his guidance, the stock trading department of Nomura Shoten was a consistent money maker by the turn of the century.
In 30 years Japan had transformed from a feudal to an industrial country. In 1904 and 1905 Japan fought and won a war against Russia. This victory over a major European power was regarded as signifying Japan's coming of age. The stock markets reflected the optimism which military victory brought and trading volume reached record heights.
In 1906, Nomura Shoten established the first research department at a Japanese financial company. The company also began publishing a daily financial newsletter that year, the Osaka Nomura Business News. Nomura's innovations began to attract a great deal of attention. In 1907, Tokushichi Nomura retired, leaving Shinnosuke to run the business. Shinnosuke was known from this time on as Tokushichi Nomura II.
In 1908, Tokushichi Nomura II took a five-month tour of the world's financial centers. When he returned he brought with him many new ideas. He divided the company's research department into four separate divisions: research, statistics, editing, and translation. Furthermore, while in the United States, Nomura saw the positive impact publicity could have on profits, so he began investing a good deal of money in advertising his company's services. Nomura also entered the bond trading and underwriting fields. By the beginning of World War I, Nomura Shoten was regularly participating in underwriting syndicates.
World War I brought a boom to the Japanese economy. Exports to belligerent nations increased dramatically. As Japanese heavy industry floated bonds to finance its rapid expansion, Nomura's business picked up accordingly. After the war the bull market subsided, but Nomura continued to expand. In 1917, Nomura Shoten was reorganized as Nomura Shoten Incorporated. One year later, Tokushichi Nomura II fulfilled a lifelong dream when he opened the Osaka Nomura Bank (now Daiwa Bank). He also set up a securities department to handle bond sales and underwriting. By 1920, regulations on bond trading were relaxed and bonds were sold at the exchanges. The market for securities had come a long way in 30 years.
In 1922, Nomura and Company was established as a holding company for the entire Nomura group, including the Osaka Nomura Bank and Nomura Shoten Inc. Throughout the early 1920s the bond market became increasingly more active, and the securities department of the Osaka Nomura Bank was expanding at a tremendous rate. In order to serve its customers better, the department was separated from the bank.
The Nomura Securities Company, Limited was incorporated on December 25, 1925. The company focused on the bond market and left the stock market alone. Otogo Kataoka, the president of the Osaka Nomura Bank and former head of its securities department, was elected president. Tokushichi Nomura II oversaw the entire operation. The firm began business with 84 employees and offices in Osaka, Nagoya, Tokyo, Kyoto, and Kobe.
The late 1920s were a time of economic difficulties for Japan. In 1927, a major panic rocked the financial community, and 37 banks were forced to close. Two years later the collapse of the New York stock market brought a worldwide depression. The economic difficulties were paralleled by the rise of militant nationalists in Japan.
Under the influence of these political groups, the government began to assume control over the economy. In 1931, Japan set up a puppet regime in Manchuria, and hostilities with China escalated until those two countries were fully at war by 1937. To finance the conflict, the government found it necessary to increase its bond issues. Nomura Securities was one of eight houses allowed to underwrite and sell bonds for the government and corporations. Government control of the bond market, however, pushed investors in the direction of stocks. In 1938, Nomura Securities opened a stock department and became an active dealer in both stocks and bonds.
World War II initially stimulated economic growth in Japan. Stocks and bonds were traded briskly and Nomura, as one of the official dealers, did well. By 1942, Nomura had a 19 percent market share of the bond market, the largest of any securities house. However, a year later Japan's military success was clearly coming to an end and the stock market plunged. Nomura, however, through its bond activities and through the newly authorized investment trust business, managed to expand right up until the end of the war.
The investment trust business was introduced in Japan in 1941 as a way of providing additional funds to finance the war. Nomura was the first company to offer the new form of investment. The decision to enter this new field caused some controversy in the company's boardroom, however. Otogo Kataoka, chairperson of Nomura Securities, was against their entry into the investment trust business. Tokushichi Nomura II, on the other hand, was in favor of entering the new business in full force. His long experience in finance and his knowledge of investment trusts overseas convinced him that the new investment vehicle could prove to be very profitable. The company's almost immediate success in the investment trust area proved him right. Nomura enjoyed a 47 percent market share of the investment trust business between 1941 and 1945. Chairperson Kataoka, having been overruled on such a key issue, resigned.
From 1941 to 1947, Seizo Iida was president of Nomura Securities. Iida had been largely responsible for Nomura's entering the investment trust business. He had begun with the Nomura group in 1922 at the Osaka Nomura Bank and joined Nomura Securities at its founding in 1925. He wrote several books on economic analysis and continually stressed the importance of Nomura's Research Department. Iida left the company in 1947, when the occupation authorities mandated retirement of many top corporate officers of the large family-controlled Japanese industrial groups known as zaibatsu.
After the war, Japan was devastated. It was estimated that one-fourth of Japan's national wealth was wiped out in 1944. Millions of Japanese were homeless. Jobs were scarce, and with six million returning soldiers, the unemployment rate seemed hopeless. The occupation forces began to reorganize the nation's political and economic structure. The 15 largest zaibatsu, of which the Nomura group was one, were broken up to end family control of the Japanese economy. Nomura Securities Company was dissolved and reorganized. Trading on the exchanges was prohibited until 1949. In the meantime, securities companies traded non-defense related industry securities over the counter at their offices. This market was vigorous as people flocked to liquidate their holdings for cash. As industrial reconstruction reached full swing, the bond market picked up. By 1948, Nomura, stressing the individual investor, had captured ten percent of the market, the largest share of any investment house.
Throughout the late 1940s, Nomura built its retail network. In addition to its 15 regular offices across Japan, Nomura set up 19 investment consultant centers in shopping malls and other key locations. These centers were an excellent way for the company to develop new customers. By providing basic information on the stock and bond markets, Nomura attracted customers who might not otherwise have been interested in investing.
In the mid-1950s, the Japanese economy slumped. But the Korean War soon stimulated demand and the economy revived quickly. Japanese exports increased dramatically. The country entered a period of steady growth, and Nomura's profits reflected this trend. In 1951, investment trusts were allowed for the first time since World War II. Nomura focused a great deal of energy on recruiting investors for the trusts and used a number of new techniques for this task. For example, it held a number of "Ladies Savings Investment Seminars" to educate women about the various forms of investing. The company also introduced the "Million Ryo Savings Chest" program, and lent out cash boxes as "piggy banks" which, once full, could be turned in for a share in an investment trust. The idea was to promote securities investment as a form of savings. The program was very successful, and by 1962 more than a million chests had been distributed.
In 1953, Nomura re-established its office in New York, which had been closed since 1936. It also established a Transfer Agency Department, the first in Japan, in 1953. In 1955, Nomura became the first company in Japan to introduce a computer system--a Univac 120. Two years later the company established the Nomura Real Estate Development Company, Ltd. The traditional businesses of Nomura grew as well throughout the decade.
In 1959, Tsunao Okumura was replaced by Minoru Segawa as president of Nomura Securities. Okumura had presided over the company since 1948. He became chairman of the board and remained in that office until 1968. Minoru Segawa had previously served as general manager of the firm. One of Segawa's first important actions was to set up separate companies to handle Nomura's huge investment trust funds. In 1960, the Nomura Investment Trust Management Company and the Nomura Investment Trust Sales Company assumed the management and development duties of Nomura's investment trusts.
Nomura's success continued throughout the early 1960s. In 1961, Nomura passed a milestone when it co-managed the first Japanese stock offering in the United States. The issue of ¥100 million worth of Sony Corporation American depositary receipts (ADRs) sold out in one hour. A year later, Nomura co-managed the first bond issue of a Japanese company in the United States. This $10 million issue for Mitsubishi Heavy Industries was soon followed by $20 million bond issue for Toshiba. Foreign capital poured into Japan, and Nomura cashed in on the increase in investment.
In 1965, Japan was hit by a severe recession, but Nomura's stable position in the marketplace allowed it to weather the storm. Nomura was the only one of the Japanese big four securities houses to record profits for both fiscal 1964 and 1965. Nomura launched one of its most ambitious projects in 1965--the Nomura Research Institute (NRI). Rather than expand its existing research department, Nomura decided to establish an independent research institute which would serve not just Nomura's needs but those of Japan as well. A number of advisors from the Stanford Research Institute in the United States helped Nomura set up the new "think tank." The company's belief that economics and technology would be closely intertwined in the future proved to be correct. NRI remains one of the premier research organizations in Japan.
In 1967, the Japanese government liberalized the capital markets, giving Nomura the opportunity to solicit greater foreign investments. Nomura International (Hong Kong) was established in 1967. In 1968, Kiichiro Kitaura became president. Kitaura was strongly in favor of an international orientation, and under his guidance Nomura continued to strengthen its overseas network. In 1969, Nomura Securities Inc. was incorporated in the United States, and was the first Japanese securities company to become a member of an American stock exchange (Boston).
In 1973, the oil crisis sent shock waves through the Japanese economy. Japanese industry, heavily dependent on imported oil, suffered a major blow and stock prices tumbled. Nonetheless, capital continued to flow into Japan in the 1970s, and as the Japanese government removed further restrictions on foreign investment, began to flow out of the country as well. Nomura established a number of investment trusts based on foreign stocks. By 1973, some half a dozen foreign stocks were listed on the Tokyo Stock Exchange. "Samurai bonds," bonds issued by foreign governments but denominated in yen, became very popular in the first half of the decade. In 1973, Nomura had its own shares listed on the Amsterdam Stock Exchange. Activities in Europe picked up dramatically. Branches in Amsterdam and London were incorporated as a single subsidiary, Nomura Europe N.V. The Frankfurt office became the headquarters of a separate subsidiary, Nomura Europe GmbH.
During the first half of the 1970s the bond market in Japan began to expand at a tremendous rate. The development of a secondary market for bonds was bolstered by an increase in government, particularly municipal, bond issues. In 1975 bond sales were more than three times what they had been in 1970 and Nomura's profits on bond transactions were up 900 percent. The "bond boom" continued throughout the decade.
In 1978, Setsuya Tabuchi took over as president of Nomura. Tabuchi devoted himself to making Nomura a primary force in the international securities arena, but also stressed the importance of the satisfied customer to the company's continued success. Tabuchi served as president for seven years, and then became chairman of the board. In 1979, the second oil crunch jeopardized economic growth, but unlike the oil crisis of 1973, panic did not set in. High-tech and other export-related companies had growth enough to ensure continued prosperity in the markets. As Nomura entered the 1980s, the Japanese economy was in excellent shape.
In 1981, Nomura's American subsidiary, Nomura Securities International. Inc., became the first Japanese securities company to gain membership on the New York Stock Exchange. As Japan strengthened its position in the world economy, Nomura Securities prepared to do the same. Nomura initiated a "Buy Japan" campaign designed to attract investment from the Middle East, Europe, and the United States and began an intensive, worldwide recruiting campaign to lure the best talent to Nomura's expanding global organization. As new offices and subsidiaries opened in Paris, Sydney, Beijing, Bahrain, Zurich, and Kuala Lumpur, they were staffed by the cream of the crop of local and Japanese personnel. Nomura also maintained its lead in securities-related computer technology. A computerized communications system, COMPASS-III, linked all its international offices by 1985. In 1982, CAPITAL (Computer Aided Portfolio and Investment Total Analysis) began to provide customers with up-to-the-minute market information and analysis. In 1985, the STOCKPORT function of CAPITAL was providing fund managers with quick analyses of the effect certain securities would have on their portfolios.
In the mid-1980s, Japan's Ministry of Finance approved substantial changes in Japan's capital market regulations. The markets were to be less restricted, allowing greater foreign competition and new debt-issuing instruments. Nomura responded by developing new kinds of bonds and by increasing its underwriting activities. Nomura presided over what can best be described as a Euroyen craze. By managing large issues like a ¥50 billion Euroyen bond issue for Dow Chemical and a $100 million forex-indexed issue for IBM Credit Corporation, Nomura established a reputation as a world class securities house. Its success in the Euromarkets was a highlight of Nomura's growth in the 1980s.
In 1985, Yoshihisa Tabuchi was chosen as Nomura's next president. Setsuya Tabuchi (no relation to Yoshihisa), nicknamed "Big Tabuchi" even though several inches shorter than his successor, became chairperson. One year after taking the helm at Nomura, Yoshihisa was named Man of the Year by Financial World magazine. In many ways the honor was a recognition of Nomura's ascension to the top of the world's securities industry.
Despite Nomura's success in Japan and Europe, the company, along with other Japanese securities houses, had difficulty establishing itself as a major player in the American market. Nomura Securities International operated more or less as an arm of the parent company. Most of its customers were Japanese. The company found it very difficult to compete with large American firms like Salomon Brothers, Merrill Lynch, Morgan Stanley, First Boston, and others who had long-established ties to institutional fund managers and debt issuers. Some analysts blamed the problem on Nomura's lack of decision-making autonomy: all major decisions had to be approved by the Tokyo office, and although Nomura recruited top-notch managers from other investment firms, many stayed only a short time because of a lack of real power to make decisions. Another problem Nomura faced was the traditional, consensus-oriented style of Japanese management. This lesson was brought home when Nomura missed out on the opportunity to participate in a $300 million issue for J. P. Morgan & Company led by Merrill Lynch in 1986 because it could not obtain approval for the action within fifteen minutes. Nomura was embarrassed to have missed the boat, and took steps to remedy this weakness.
In the late 1980s, Nomura Securities International in New York fell upon hard times. The stock market crash of October 1987 wiped out some investors and scared many others out of the market. Bond sales, including U.S. treasury notes, also declined a year later. Although Nomura was the largest and wealthiest securities firm in the world by 1989, it was still having trouble muscling into the U.S. domestic market and was considering acquiring an established American securities firm.
Nomura's staggering success of the 1980s was overshadowed by the scandal ridden 1990s. When the Tokyo stock market dropped suddenly in 1990, Nomura's stock plunged 70 percent from its 1987 summit. The firm's equity underwritings fell from 1,201 in fiscal year 1990 to a scant 12 in the first six months of 1991. While the Tokyo stock market continued to decline in 1991, Japan's top securities firms were embarrassed by public disclosure of tobashi, the Japanese practice of reconciling the accounts of favored clients to compensate for stock losses. The government investigated charges that Nomura had improperly covered ¥170 billion in losses suffered by wealthy customers. The company was also linked to Japanese underworld boss Susumu Ishii and his Inagawa-Kai crime syndicate. Finally, Nomura was accused of manipulating Tokyu Corp.'s stock price. Nomura chair Setsuya Tabuchi and president Yoshihisa Tabuchi resigned in disgrace in 1991.
The government did not file formal charges against Nomura because the company had technically not broken any Japanese laws. The lack of regulations and ethics outraged many of the ordinary investors Nomura had worked so hard to cultivate. The scandal, and the government's slow, weak reaction to it, threatened the cooperative relationship between Japan's bureaucrats and businesspeople. Although the investment firm received light discipline from the government, the sentence from investors and clients was severe: Nomura's trading volume fell from 16.3 percent of the market in 1987 to 5.8 percent by the end of 1991. Earnings amounted to ¥50 billion, ten percent of the 1987 high.
Nomura's new leaders, president Hideo Sakamaki and co-chair Katsuya Takanashi, worked to revive the firm according to a new set of client-driven rules. A comprehensive overhaul of the firm's day-to-day procedures was undertaken. Cost-cutting measures included a five-year phase-out of 2,000 jobs through attrition. Nomura also worked to reduce its dependency on the Japanese stock market and transform its European units into investment banks, rather than "mere brokers." The branches were also granted more autonomy.
Despite the scandals and market troubles, Nomura had several strengths in the early 1990s. The firm remained financially sound, having refrained from investing profits in Tokyo's "roaring bull market" of the 1980s. Nomura's change in corporate culture was reflected in the fact that in 1991, for the first time in Nomura's history, branches were ranked on whether they earned enough to cover their overhead, rather than the total of their commissions. Analysts suggest that perhaps, by returning to the customer oriented ideals of Tokushichi Nomura II, Nomura Securities can regain its financial and ethical reputation.
Principal Subsidiaries: Nomura Research Institute (NRI); NRI Life Science; Nomura Investment Management Co., Ltd.; Nimco Europe Ltd.; Nomura Computer Systems Co., Ltd.; Nomura Operation Services Co., Ltd.; Nomura Business Services Co., Ltd.; Nomura Land and Building Co., Ltd.; Nomura Real Estate Development Co., Ltd.; Nomura China Investment Co., Ltd.; The Nomura Securities Investment Trust Management Co., Ltd.; Nomura Tourist Bureau, Inc.; Japan Associated Mortgage Acceptance Co., Ltd.; Nomura Card Services Co., Ltd.; Japan Associated Finance Co., Ltd.; JAFCO American Ventures Inc.; Jafco International (Asia) Ltd.; Jafco Finance Co., Ltd.; Nomura, Babcock, & Brown Co., Ltd.; Nomura Securities International Inc.; Nomura Securities International Ltd.; Nomura International Finance Plc; Nomura Belgium; Nomura Europe N.V.; Nomura Europe GmbH; Nomura (Switzerland) Ltd.; Nomura France; Nomura Investment Banking (Middle East) E.C.; Nomura International (Hong Kong) Ltd.; Singapore Nomura Merchant Banking Ltd.; Nomura Futures (Singapore) Pte Ltd.; Nomura Australia Ltd.; Associated Japanese Bank (International) Ltd.; P.T. Finconesia.
Beyond the Ivied Mountains: The Origin and Growth of a Japanese Securities House, Tokyo: Nomura Securities Company, Ltd., 1986.
"How to Grow Strong on Humble Pie," Economist, November 23, 1991, pp. 93-94.
Sender, Henny. "The Humbling of Nomura," Institutional Investor, February 1992, pp. 49-53.
"Tokyo's stock scandal keeps growing," Financier, August 1991, pp. 31-34.
Source: International Directory of Company Histories, Vol. 9. St. James Press, 1994.