As investors, we can rejoice in the work ethic of Asian companies, as well as their inventive technology and presence in some of the world’s greatest growth markets. But there’s one "bad habit" that Asian management just can’t seem to shake and it’s one investors need to look out for: Trying to build businesses in the United States, and devoting huge amounts of shareholder resources in the process.
Nomura Holdings Inc. (ADR: NMR), the Japanese investment bank, is a good example of this bad habit. On Tuesday, Nomura reported a loss for the quarter ended June 30 of $770 million (84.3 billion yen) due to a write-down of $575 million (63.1 billion yen) on its exposure to monoline insurance companies. Nomura also had a $190 million 21 billion yen) loss on its investment in Fortress, a U.S. hedge fund.
These losses came only three months after Nomura declared a loss of $1.5 billion on write-downs due to its bond insurer exposure in March 2008, and nine months after declaring a $700 million write-off of its subprime mortgage exposure and exiting the business.
This is the third or fourth time this has happened to Nomura, ever since it started serious international expansion in the early 1980s. It puts lots of resources into businesses in New York, or sometimes London, then a few years later retires to lick its wounds after reporting huge losses.
Unfortunately, it is not likely Nomura’s losses will cure it of its bad habit this time around, either.
Nomura President Kenichi Watanabe told executives in March that the firm would "aggressively take risks" and boost profit by expanding its global investment banking, fixed income and private equity businesses. He also told The Financial Times that Nomura should expand aggressively internationally, using London as its international "factory" in which products would be developed and exported to both New York and Tokyo.
Nomura is the undisputed leader in investment banking and brokerage in its home market. A year ago, it might have worried somewhat because Citigroup Inc. (C) bought a majority stake in its nearest competitor, Nikko Cordial Corp. (PINK ADR: NIKOY). However, the sub-prime crisis broke last summer, and has enveloped Citigroup in an ever-increasing spiral of losses and disasters. Thus, the last thing Citigroup has thought about is aggressive expansion in Japan, so Nomura should easily able to pick up a few more points of market share in its domestic business. But to do so, Nomura needs to shelve its ambitious U.S. expansion plans and focus on its own backyard.
Nomura is not the only Asian firm to fall prey to the allure of U.S. expansion. SK Telecom (ADR: SKM), the South Korean wireless telephone giant, has more than a 50% share of its domestic market. And the new government has finally allowed it to push aggressively for expansion.
