Japanese Banks Roaring Up Wall Street
The Japanese are back.
For the first time since the early 1990s, Japanese investors are making big, risky bets in the U.S. Instead of snapping up trophy assets like Pebble Beach and Rockefeller Center, however, the Japanese are helping to recapitalize the U.S. financial system.
On Monday, Mitsubishi UFJ Financial Group Inc., Japan's largest banking group by market capitalization, said it would acquire 20% of Morgan Stanley. The deal hasn't been finalized, but MUFG will pay $8 billion to $9 billion, according to people familiar with the matter, a premium of about one-third to Morgan Stanley's closing share price Friday.
Also Monday, Nomura Holdings Inc., Japan's largest brokerage house by market cap, won an auction for the Asian operations of Wall Street firm Lehman Brothers Holdings Inc., which is in bankruptcy-court protection. Nomura is paying $225 million for the equities, fixed-income and investment-banking operations of Lehman across the region, including in Japan and Australia, according to a person familiar with the situation, and includes $50 million in goodwill.
The moves show how the U.S. financial crisis has opened up opportunities for cash-rich foreign companies from Asia to the Middle East. While many had expected Chinese banks to become more prominent players, it is the Japanese financial companies, which have been relatively unscathed by the financial crisis so far, that are acting aggressively.
One reason is that after years of caution spent weathering the economic woes at home, Japan's banks are looking for growth. Japan remains the world's second-largest economy as measured by gross domestic output, but with its graying population, it is a growth laggard. In order to secure future prosperity, its institutions have to look abroad.
Nevertheless, the investments in the U.S. financial sector have come as a surprise, given Japan's reputation for risk aversion. Over the past year, sovereign wealth funds from Singapore to Abu Dhabi have taken huge hits on their investments.
Morgan Stanley needed the capital infusion because it and other investment banks found that they didn't have enough balance-sheet strength to support leveraged bets on markets from U.S. mortgages to international stocks. Morgan Stanley secured an investment from China Investment Corp., an investment arm of the Chinese government, late last year.
MUFG has been the most aggressive of the Japanese banks. Realizing there weren't adequate growth opportunities at home, MUFG officials have repeatedly said they were talking to several companies overseas to find investment opportunities that would help the bank expand its presence in strategic areas such as investment banking.
The first such deal was announced in August. MUFG agreed to pay a little more than $10 billion for the 35% of UnionBanCal Corp. that it hadn't already owned, making the San Francisco bank holding company a wholly owned subsidiary.
On Monday, an MUFG spokesman said the company wishes to partner with Morgan Stanley across a wide range of investing activities. If the deal closes, a representative of MUFG will join the Morgan Stanley board.
John J. Mack, Morgan Stanley's chairman and chief executive officer, said, 'This strategic alliance with Mitsubishi UFJ can put Morgan Stanley in an even stronger position as we look to realize the opportunities we see in the rapidly changing financial marketplace.'
Other financial companies have also invested in Western banks recently. Sumitomo Mitsui Financial Group, Japan's No. 2 bank by market cap, in June said it would inject nearly $1 billion in the U.K.'s Barclays PLC. Mizuho Financial Group in January said it would provide $1.2 billion to Merrill Lynch & Co. through the purchase of preferred shares.
The deals illustrate the reversal of fortunes between the financial sectors in Japan and the U.S. A decade ago, Japanese banks were damaged from their own bad-loan problems, requiring the government to spend nearly $440 billion to strengthen them. Many financial companies have consolidated and restructured since then, and have regained their health recently.
Many have been eager to expand overseas to keep their businesses growing at a time when the domestic market is shrinking because of a declining population.
Alison Tudor |
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