Travelers seeks stake in Nikko

Click to follow
TRAVELERS, the US financial services conglomerate, is in talks to buy up to a 25 per cent stake in Nikko, the third largest Japanese brokerage, in a deal worth as much as 200bn (pounds 1bn).

The Travelers/Nikko tie-up, which sources say could be announced as early as this week, comes just a month after Travelers and Citicorp, a US bank, announced details of their $71bn (pounds 42.5bn) merger. And it was only last September that Sanford ("Sandy") Weill, chief executive of Travelers and a consummate deal-maker, said he was buying Salomon Brothers, the US investment bank.

Deryck Maughan, co-chairman of Salomon, is in Tokyo talking to Nikko, according to press reports. Mr Maughan previously headed up Salomon's Japanese operations. Salomon Smith Barney - the bank formed by the merger of Salomon Brothers with Travelers'Smith Barney - was unavailable for comment yesterday.

A Nikko spokesperson said negotiations were continuing, but declined to provide details.

Industry sources said Travelers could this week announce that it was buying a stake of between 10 and 25 per cent in Nikko, which has been beset by financial problems in the wake of the Asian crisis.

The sources said the two companies were considering launching a joint venture between Salomon and Nikko - a new securities firm which would manage much of Nikko's institutional business, leaving the Japanese firm to focus on the retail sector.

The Travelers move would be the latest in a series of overseas investment in the Japanese financial services, made possible by the recent deregulation in the sector - the so-called Japanese "Big Bang",

In March, Merrill Lynch, the US bank, took over branches of Yamaichi Securities, the bankrupt Japanese brokerage. More recently, Goldman Sachs, Fidelity Investments, and HSBC - owner of the UK's Midland Bank - all forged alliances with Japanese banks.

"Japanese institutions are for the first time considering alliances with foreigners, and foreign houses are eyeing the opportunities being created by the `Big Bang'," said Brian Waterhouse, of HSBC Securities in Japan.

It is unclear at this stage what the implications of any deal would be for the London employees of Nikko Europe, the Japanese brokerage's European arm. Both Salomon Smith Barney and Nikko Europe have substantial, and overlapping, operations in the City.

A Travelers/Nikko tie-up would be yet another notch on the bedpost for Sandy Weill, who created the Travelers conglomerate from scratch from doing deal after deal.

Although the Travelers/Citicorp deal, announced last month, will create a financial services powerhouse, the group is believed to harbour concerns about its Japanese presence.

Nikko, on the other hand, has had a series of catastrophic financial results, in part because of the Asian crisis.

Nikko has just reported that its group's losses narrowed by 43 per cent to 72.5bn (pounds 326m) in the six months to March. In the equivalent period last year, it lost 127bn (pounds 572m).

The Japanese brokerage, third largest after Nomura and Daiwa, has also been tarred by the "sokaiya" - or Japanese racketeer - scandal. Japanese regulators banned Nikko from trading on its own account for 10 weeks as a punishment for its part in the scandal.

Back in March, Moody's, the credit agency, downgraded Nikko's long-term credit rating.