Rowena Everson

Many seasons have passed since we last talked about the readiness of Japan’s mighty finance houses to boldly go where few Japanese banks had gone before - overseas. Then, Daiwa Securities chief, Shigeharu Suzuki, was boasting of a 100b Yen commitment to regional investment, while Nomura announced its intention to acquire an Indian investment bank. Since those joyful days we have had the season of ‘Thanksgiving’ – when a summer of bad news such as failed bank, Northern Rock, finally gave way to another upsurge in global equity markets. Then came the season of ‘Panic’, after Bear Sterns famously imploded and speculation of who would be next spread like a fever.

A brief interlude of ‘Optimism’ pervaded while we asked the question of whether the sub-prime write-down news was finally over. And then came the misery of ‘Realisation’ that the implications of the credit crisis had infected such far-reaching areas as wealth management, and UBS watched its customers defecting to other rivals. The media circled around the flayling life-forms, predicting the end of the banking model as we knew it. By rights, if banking were indeed a living thing passing through the stages of death, we have passed depression and should now be ready for acceptance. Resistance is futile. But banks (and bankers) are made of sterner stuff; instead of acceptance we seem to be entering a zone of ‘Disaster fatigue’, where bad news is greeted by a shrug and a readiness to carry on. Nowhere is this more evident than in Japan’s FIs.

Going it alone
More than a year after it announced its intentions to acquire an investment bank in India, and after many months of wrangling with Enam Securities (a previously failed target for JP Morgan), Nomura may well be going solo in India. Reports suggest it will start with an institutional brokerage business and pursue the retail space later. India is proving to be a popular target for beleaguered investment banks in search of new pastures. Merrill Lynch, Goldman Sachs and Morgan Stanley have all strengthened their positions in the Indian financial services market, as has Mitsubishi UFJ with its recent Tata Capital tie up. Mitsubishi, one of Japan’s top 3 banks, has also been busily consolidating its position in the US. While bad news continues to pervade the market, some have begun the process of bargain hunting.

Already with a 65% stake in UnionBanCal Corp, a San Francisco based lender with 330 branches along the west coast, Mitsubishi is attempting to purchase the remaining 35% as we go to press. California’s lenders have been about as popular as a leper in a nudist colony lately. The demise of Indymac, fear of further bank runs and California’s mortgage woes, with rising foreclosures, has domestic players like Fannie Mae beating a retreat from even non-sub-prime areas. The US mortgage giant is apparently pulling out of the Alt-A market (prime to sub-prime), which will make many borrowers’ costs higher and therefore defaults more likely. Mitsubishi, however, seems happy to press on with its acquisition of the bank that was formed from a combination of the California holdings of Mitsubishi Bank and Bank of Tokyo after their 1996 merger. The figures seem to support the theory: Unionbancal reported second-quarter profit of $141.3 million, beating analysts estimates. And acquisition of the remaining shares is expected to boost Mitsubishi’s net income by 20 billion yen.

So Eighties
Can we expect to see more Japanese financial powerhouses follow in the wake of Nomura and Mitsubishi? If logic pervades, we certainly should. The domestic front has promised little for many years. It looks even less promising in the current environment as rising bankruptcies among real estate contractors hurt bank earnings. Domestic player Hiroshima Bank tumbled to a four year low in August following the collapse of property developer, Urban Corp, and Sumitomo Mitsui fell by the most in six months after bad-loan provisions rose.

Maybe they should both consider a vacation in the US, which holds possibilities for potential bargain hunters. Both Zion Bancorp and Dallas-based Comerica Inc are being touted as possible targets for Japanese banks hunting for acquisitions. So as we settle into a new season of pragmatism and cautious re-building, rather like the 1980s when they introduced the world to outsourced manufacturing and karaoke, the Japanese may well find themselves leading the way out of a period of economic gloom. Let’s hope the hairstyles are better this time round.