Global Ambition

IFR Asia Awards 2018
10 min read
Keith Mullin

Japanese banks have for decades been criticised, fairly or unfairly, for a boom-bust approach to international business. Amid ongoing monetary stimulus at home, how do their global ambitions stack up today?


The period since the global financial crisis has coincided with a time of heavy investment by Japanese financial institutions. Emerging from their own 1990s banking crisis and the economic torpor of the post-bubble era, Japan’s restructured and rejuvenated banks looked overseas for growth from an enviable position of strength.

Mitsubishi UFJ Financial Group’s purchase of a 24.4% stake in Morgan Stanley and Nomura buying Lehman Brothers’ European and Asian businesses were the most high-profile examples of Japanese banks moving out into the world.

Other banks acquired huge portfolios of assets from international players forced into panicked post-crisis deleveraging, in the process further globalising their footprint. Mizuho’s purchase of RBS’s North American loan portfolio, for example, added bankers in key areas such as debt origination and leveraged finance.

In corporate and investment banking, the three mega-commercial banks have led with their large balance sheets and have long been leading cross-border syndicated lenders. Refinitiv’s investment banking fee data (covering M&A advisory, DCM, ECM and syndicated lending) had the three megabanks plus Nomura in the top 25 global fee earners at the nine-month 2018 stage.

Notably, Mizuho, MUFG and Sumitomo Mitsui Financial Group heavily outperformed the market: while the global fee pool fell 4.8% year on year, Mizuho increased its take by 12.8%, MUFG by 12.4% and Sumitomo by 9.1%.

It is fair to say, though, that while the Japanese houses are slowly building better non-Japan DCM profiles (particularly Mizuho and MUFG), they are not yet competing at the top table and their international equity and advisory businesses lack scale.


Japanese banks need international profiles now more than ever given conditions at home, where Bank of Japan stimulus has killed net interest margins and an ageing population has curtailed future business opportunities.

But the thorny task confronting management now is not just to lessen reliance on lending, it’s weaving everything into a coherent – and more profitable – global whole with a convincing strategic back-story. They must do so amid parallel initiatives to cut costs, reduce headcount, and close branches at home – all of that against the backdrop of potentially tricky global market conditions and challenging industry trends.

“As long as they play to their competitive niches and core strengths, they’ll do OK. But this is not the most fortuitous time to be adopting a generalist approach,” said Benjamin Quinlan, CEO of consulting firm Quinlan & Associates. “This is especially the case in the current regulatory climate, where legislation such as MiFID II is forcing banks and brokers to become disciplined about where they play and the content they produce while ratcheting up their cost base. I do think the Japanese banks will run into headwinds.”

Nomura has had its fair share of pain since acquiring the Lehman businesses, yet Steve Ashley, global head of its wholesale division, is cautiously upbeat.

“Market conditions remain very challenging, but the changes we’ve made to our wholesale business since April 2016 have left us with a solid core operating business with a proven track record. Our flow macro business, despite a challenging last few quarters in some regions, continues to be a large contributor to overall profitability for wholesale,” Ashley said.

In terms of priorities, Nomura will continue to focus on reinforcing its agency execution business Instinet by positioning it as a multi-asset platform.

Business diversification is high on the agenda: one area earmarked for growth is the Americas advisory franchise. Nomura launched a private-side business unit – client financing and solutions – in April, taking content from IB advisory, client coverage, and sales and structuring in global markets to create a suite of structured credit products. The firm is rolling this out internationally with a view to increasing cross-selling.


Daiwa’s push, meanwhile, includes a move to business diversification alongside more standard measures of increasing throughput from ECM and DCM, and strengthening M&A capabilities.

The firm acquired US boutique investment banks Sagent Advisors and Signal Hill Holdings in 2018, forming DCS Advisory to focus on M&A advisory and private capital raising. With the existing London-based DC Advisory mid-cap M&A business, Daiwa has a 500-strong advisory business.

In the near term, the focus for Daiwa Capital Markets Europe in London is to make sure the business is protected through Brexit. A newly established subsidiary in Frankfurt will ensure that clients continue to have access to the same products and services; DCME will also look to expand its DCM franchise into Eastern Europe and the Nordics.

“Looking further ahead and in terms of what our strategic journey is, the old business model is changing rapidly on the back of changes like MiFID II and lower volumes and low volatility in fixed income. A key strategy for us is finding new revenue lines,” said Keith Meekins, chief executive of DCME and chairman of DC Advisory.

DCME is looking at potential bolt-on acquisitions as well as new business lines, including joint ventures. One recent departure was the establishment of a principal investments business providing debt finance in UK real estate, and it is now looking to exploit other potential opportunities in EMEA, including in Africa.

“The only way banking businesses today will survive will be creating new sources of revenue away from traditional business lines,” Meekins said. “We will continue offering sales and trading capabilities; that’s bread and butter business. But where will that be in five years? As standalone businesses, unless you have primary origination capacity, I question its long-term viability.”


Mizuho’s core strategy for expanding its business with non-Japanese companies is centred on the Global 300, a group of around 300 blue chips.

On Mizuho’s numbers, the breakdown of non-interest income by business at the fiscal half-year stage showed a 13% year-on-year increase in banking income outside Japan to ¥92bn, with Asia outperforming (+26%). International loans increased 11% year on year at the interim stage to US$240bn, propelled by average loan spreads that, at 85bp, were 75% higher than spreads on loans to large corporate customers in Japan. Off the back of that, profits from non-Japanese transaction banking have risen steadily: from US$280m for fiscal first-half 2016 to US$380m a year later, to US$480m in the latest numbers for the fiscal 2018 first-half.

The focus on increasing market share and revenues in US DCM continues and the bank is sticking to its target of a top 10 league-table position.

“We are leveraging our presence in US dollar debt markets in order to strengthen our DCM business in Europe and Asia. Also, we are developing a global sales and trading framework, developing competitive products and improving our business infrastructure,” said a senior Mizuho spokesperson. Key areas include transaction banking, US structured finance and US non-investment-grade activities.

MUFG is more closely integrating its commercial banking, trust banking and securities businesses as it seeks to build an origination-to-distribute approach and shift away from its loan-centric business model.

“We will leverage our status as a top-tier global debt house to help clients tap into new pools of liquidity, such as the Samurai market, while adopting a disciplined approach towards event finance and acquisition finance initiatives across Asia,” said Geoffrey Coley, international head of MUFG’s securities business.

“Historically, we’ve been focused on corporates, and while they will continue to form our central core of clients, there is a huge opportunity for us to expand into financial institutions through our suite of origination, structuring and distribution capabilities.”

To do this on a global basis, the firm is blurring lines between entities. “The de-siloing of our Japanese and non-Japanese business units is a clear indication of our commitment to this,” Coley said. Since October 2018, global business lines have been headed by managers all over the world who have responsibility for the domestic Japanese business units as well as those outside Japan.

The Americas is a major growth area. In October, MUFG Union Bank acquired Intrepid Investment Bankers, a regional mid-market investment banking boutique based in Los Angeles. The firm is also focused on growing its leveraged finance business, where it recently led its initial Term Loan B transactions.

SMBC’s medium-term plan is focused on seven core business areas. In CIB, this includes an aspiration to increase market share in major global markets and strengthen sales and trading capability.

On the international front, group CEO Takeshi Kunibe said at the BofA Merrill Lynch Japan conference in September that the group is working to improve asset efficiency by rebalancing the business portfolio in favour of global products such as high-profit assets and project finance where it has strengths. Like its rivals, promoting cross-selling is high up the list of priorities.

Among major international initiatives is a push not just to strengthen global products but to promote cross-selling to improve asset efficiency, and mid-to long-term growth in Asia. Like its megabank peers, SMBC is working to enhance relationships with corporate clients and offset lower interest income by pivoting to non-interest income to transform its profit structure.

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Global Ambition