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

Greenhill & Co

03/07/2023 10:00

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      Mizuho's Greenhill deal to fill in 'missing pieces'-exec
    

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      Mizuho aims to be in top 10 US equity league table-exec
    

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      SMFG to triple stake in Jefferies to as much as 15%
    

  
    By Makiko Yamazaki and Ritsuko Shimizu
       TOKYO, July 3 (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. 
($1 = 144.3200 yen)

 (Reporting by Makiko Yamazaki and Ritsuko Shimizu; Editing by
Jamie Freed)
 ((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))