Buying Nikko Cordial: retail broking from a crisis-hit Citi (2009)

A move that read the crisis as a chance to buy cheap

At the heart of this acquisition is a judgment that read the crisis as a chance to buy cheap. A first-rate securities house rarely comes up for sale in normal times; it was only because Citi let go of one of Japan’s earners in the middle of the financial crisis that Sumitomo Mitsui could obtain, whole, the retail securities arm it had lacked in-house. Knowing full well its own wound — the move came just after it had posted a net loss — it reached for a piece of merchandise that seldom appears. There had been the option of playing pure defense; that it chose offense instead is where the character of this decision shows.

Yet a crisis purchase carried a cost beyond the price tag. On top of paying above the going rate, heavy tasks remained: how to hold on to the staff and clients bruised by the sale, and how to rebuild the corporate-securities business. It took years for the aim of fusing banking and securities to show up in the numbers, and the break with Daiwa brought new burdens of its own. Even so, SMBC Nikko Securities grew into the core of Sumitomo Mitsui’s securities operation, and this move — swallowing a major brokerage whole in the depths of a crisis — became a fork in the road that shaped the group it would later become.