Japan’s top lenders in fresh drive to win US investment banking deals

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TOKYO (Reuters) – Japan’s top lenders aim to carve out a larger presence in U.S investment banking as they look to make better use of their massive balance sheets by winning a bigger slice of deals, executives say.

For years Japan’s megabanks have been notable players in U.S. corporate lending, armed with huge assets backed by household deposits at home. But they have struggled in the more lucrative market for advising and other fee-based businesses in investment banking.

Mizuho’s (8411.T) $550 million acquisition of U.S. boutique firm Greenhill (GHL.N) announced in May will help it fill in “missing pieces” in advisory services and other areas, said Yoshiro Hamamoto, CEO of Mizuho Securities, the brokerage arm of Japan’s third-largest bank.

“We will gain more capabilities to pitch various solutions to clients, instead of simply offering to extend a balance sheet,” he said in an interview. “Our strategy is to make better use of our balance sheet and boost returns on risk-weighted assets.”

Stronger advisory functions will have spillover effects into equity offerings, where Mizuho hopes to move up into the top 10 U.S. league table, Hamamoto said.

The 2015 acquisition of Royal Bank of Scotland’s North American corporate loan portfolio had bolstered Mizuho’s capabilities in debt capital markets.

Mizuho’s bigger domestic rival, Sumitomo Mitsui Financial Group (SMFG) (8316.T), is also seeking to expand in U.S. investment banking.

The No. 2 Japanese bank said in April it would triple its stake in Jefferies Financial Group (JEF.N) to as much as 15% and combine its U.S. equity and mergers and acquisitions (M&A) business with its partner in an alliance designed to leverage Jefferies’ investment banking expertise and SMFG’s balance sheet.

It follows in the footsteps of top Japanese bank Mitsubishi UFJ Financial Group (MUFG) (8306.T), which boosted its U.S. presence through a $9 billion investment in Morgan Stanley (MS.N) in 2008 that gave MUFG some 20% ownership of the Wall Street bank. The duo has since done many big deals together.

The top three Japanese banks have a combined 911.5 trillion yen ($6.32 trillion) in assets, according to Refinitiv data, reflecting large household savings in the world’s third-largest economy.

MUFG and Mizuho were the seventh- and ninth-biggest bookrunners for U.S. loans in 2022, while none of the top three Japanese banks ranked among the top 10 for U.S. bond, equity offerings and M&A, according to Dealogic.

LEVERAGING CONNECTIONS

Japanese banks have made attempts at cracking the U.S. market previously, but the results have been mixed. After many years of investment, MUFG pulled the plug on retail bank MUFG Union Bank in 2022.

Japanese banks have been considered generous lenders to U.S. clients but unlike their American rivals they had previously shied away from demanding capital markets or M&A deals in exchange, a former executive at a major Japanese bank’s U.S. unit said on condition of anonymity.

“They are eager to change,” the former executive said.

Morningstar analyst Michael Makdad said the best opportunities for Japanese firms in U.S. investment banking were in areas where they could leverage their connections to Japanese investors.

Otherwise, they risked the fate of European banks Credit Suisse and Deutsche Bank (DBKGn.DE) that bought U.S. investment banks First Boston and Bankers Trust respectively, but were unable to take significant market share from large local players like Goldman Sachs (GS.N), Morgan Stanley and JPMorgan (JPM.N), he said.

Mizuho’s Hamamoto said the Greenhill deal would broaden the scope of its cross-border M&A advisory, particularly for Japanese companies stepping up their search for investment or divestment opportunities as a way to increase capital efficiency.

Mizuho has said it plans to retain the Greenhill brand, global network and leadership team.

Image: REUTERS/Kim Kyung-Hoon

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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