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. THORNY TASK 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 o
