Daiwa SMBC to buy unit of Britain's Close Brothers

TOKYO/LONDON Mon May 18, 2009 6:30am EDT

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TOKYO/LONDON (Reuters) - Japan's Daiwa Securities SMBC Co said on Monday it would buy the corporate finance unit of Britain's Close Brothers Group (CBRO.L), joining a push by Japanese investment banks to sign cross-border deals.

Daiwa Securities SMBC, an investment banking venture between Daiwa Securities Group (8601.T) and Sumitomo Mitsui Financial Group (8316.T), will pay 75 million pounds ($114 million) for Close Brothers Corporate Finance, the buyer said in a statement.

Before the sale is completed, Close Brothers will contribute 8 million pounds of working capital to the division. Daiwa SMBC expects to complete the transaction at the end of June.

The Japanese investment banking industry has been taking advantage of the global financial crisis to acquire stakes in big Wall Street firms or by buying some of their Japanese operations.

Last year rival Japanese brokerage house Nomura (8604.T) bought the Asia, Europe and Middle East operations of bankrupt U.S. investment bank Lehman Brothers.

Close Brothers, founded in 1878 as a merchant bank to provide farm mortgages in Iowa, is a much smaller deal but it has built its business in the past two decades with a string of acquisitions, including the purchase of Hill Samuel's corporate finance unit in 1996.

The Corporate Finance unit posted adjusted operating loss of 2.9 million pounds in the first half of the current financial year, or the six months to January 31.

"I would expect over the year as a whole that we would do better than that, but that's not a forecast," Stephen Aulsebrook who will remain the unit's chief executive said in an interview.

"The restructuring business that we started to take on in massive volumes... is now starting to come into successful transaction fees and our run-rate at the moment is significantly better than it was in the first half," he added.

The corporate finance unit, which posts an adjusted operating profit of 10 million pounds for 2008, is working on 55 restructuring mandates.

Close Brothers shares were 0.7 percent weaker at 624 pence at 0931 GMT (5:31 a.m. EDT), underperforming the Dow Jones Stoxx banking index .SX7P, which was 1.6 percent stronger.

GROWTH FOR DAIWA, FOCUS FOR CLOSE

Daiwa SMBC approached Close Brothers last autumn to discuss the purchase, a source close to Close Brothers said. Daiwa SMBC already has an alliance with U.S. advisory firm Sagent Advisors.

Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank by assets, is planning to set up a joint investment banking venture in Japan with Morgan Stanley (MS.N) after the Japanese bank injected money into the U.S. bank.

Sumitomo Mitsui Financial Group, Japan's third-largest bank, is set to buy Citigroup's (C.N) Japanese broker and key investment banking units for $5.9 billion and is reorganizing its investment banking businesses, including Daiwa SMBC.

Close Brothers said it would now focus on developing its three larger divisions -- banking, asset management and securities. The corporate finance unit had never contributed more than 10 percent of the group's profit, Aulsebrook said.

"Its earnings are more cyclical than in other parts of the business," he added.

Close Brothers is due to issue a trading update for the three months to April 30 on Thursday.

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