Sumitomo & Mitsubishi Go "Head-to-Head" Again In Battle For Dominance Of Japan's Reviving Banking Sector
Japan’s two leading “megabanks” are sketching out their borders in the country’s fledgling securities industry.
In the past 12 months, Japan’s financial climate has become increasingly aggressive as the country’s once banal commercial banks have turned their attention towards acquiring U.S. assets on the cheap and consolidating their securities’ businesses.
The latest big deal to come out of the Japanese financial world is a potential ¥923 billion ($9.4 billion) sale of shares in Sumitomo Mitsui. A share sale on that magnitude would represent 125% of the total amount raised in share sales by companies in Japan so far this year, and will dilute existing shareholders by around 30 percent.
The bank intends to use the funds to pay down some of the 545 billion ($5.6 billion) it agreed to spend on Citigroup’s Nikko Cordial Securities unit last month. While Sumitomo shares plunged 6.4 percent on the announcement Monday, that won’t be of any concern to the bank: it expects to be making a tidy profit on Nikko Cordial by the end of the year. It also says that it’s “bad loans” are now within expectations.
According to Bloomberg’s report on the sale, demand should be strong. “We are subscribing to the SMFG share sale and think the potential for share appreciation is high,” Hiromichi Tsuyukubo, a hedge-fund manager at $100 million Myojo Asset Management Japan told the wire. “We expect first-quarter results for the banking sector to be good.”
Sumitomo, you may remember, has close ties with U.S. investment bank Goldman Sachs, in which it owns shares. It is going head-to-head with Mitsubishi UFJ in the recently-revived Japanese securities market.
Mitsubishi’s response to Sumitomo’s Nikko Cordial acquisition seems to have been in upping its stake in U.S. investment giant Morgan Stanley. When Morgan Stanley sold 80 million shares for a total of $2.2 billion last Thursday, Mitsubishi snapped up 25 percent of the offering. MUFG now owns a whopping 365 million shares, or nearly a quarter of Morgan Stanley.
Mitsubishi left no one in doubt that it was planning on building a global investment partnership with the American bank. Barron’s reports:
“MUFG and Morgan Stanley are currently engaged in discussions on a global strategic alliance in a broad range of fields, including corporate finance and investment banking, retail financial business, and asset management,” the Tokyo-based company said in a press release Thursday. “The purpose of this investment by MUFG is to maintain and strengthen the strategic alliance between MUFG and Morgan Stanley.”
On a much smaller but related note, today Nomura announced that it paid $29 million for a 19 percent stake in Indian asset manager LIC Mutual Fund. Although the deal is tiny by comparison to Sumitomo and Mitsubishi’s multi-billion dollar shenanigans, it’s typical of the way in which Japanese banks are transforming themselves from purely national interest-earnings machines into aggressive global risk-takers. India’s stock market is up more than 50 percent this year, making it one of the best performers among global indexes in 2009.
Related Reading at BNET Finance:
Daniel M. Harrison has written for the Wall Street Journal, Dow Jones Newswires, and Forbes.com. In 2007, he initiated Asian market coverage for TheStreet.com; he's also served as Opening Bell editor at Dealbreaker.com and writes The Global Perspective blog.
Follow him on Twitter.
BNET User Analysis