TOKYO- Japan’s top lenders aim to carve out a larger presence in US 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 US 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 $550 million acquisition of US boutique firm Greenhill 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 US 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) is also seeking to expand in US investment banking.
The No. 2 Japanese bank said in April it would triple its stake in Jefferies Financial Group to as much as 15 percent and combine its US 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) which boosted its US presence through a $9 billion investment in Morgan Stanley in 2008 that gave MUFG some 20 percent 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 US loans in 2022, while none of the top three Japanese banks ranked among the top 10 for US bond, equity offerings and M&A, according to Dealogic.
Japanese banks have made attempts at cracking the US 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 US 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 US 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 US investment banking were in areas where they could leverage their connections to Japanese investors.
