Are the Japanese Poised to Make a New Run on U.S. Banks?

By Matthew Monks January 25, 2012, 2:31 p.m. EST 2 Min Read

M&A

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M&A

Expect More Cross-Border M&A in 2012

Many big banks in debt-plagued Europe need to slim down and raise capital. As a result, experts say they expect more opportunities for U.S. banks to beef up as overseas conglomerates unload unwanted assets.

By Matthew Monks

December 2

Are the Japanese itching to join the Canadians among the few foreign banks with the health — and desire — to go shopping for U.S. banking assets?

That is a question on the minds of U.S. investment bankers following two recent cross-border deals by Sumitomo Mitsui Financial Group Inc.

The Tokyo banking conglomerate flexed its international M&A muscle on consecutive days last week. It agreed to pay about $93 million for a 5% stake in a New York investment bank, Moelis & Co., on Jan. 18, a day after agreeing to pay $7.3 billion for the Royal Bank of Scotland Group PLC's aircraft leasing division.

The RBS deal in particular illustrated that Sumitomo — on the prowl for acquisitions globally given a lack of growth opportunities in Japan — has the infrastructure in place to go after bigger deals in the states. Its deal team in New York enabled the Japanese company to coordinate around the clock with RBS' people in the U.K. and U.S., an industry source said.

Its investment in Moelis & Co. expands on a previous partnership that provided M&A advice for Japanese companies expanding overseas, the companies said. Chief Executive Ken Moelis, a former president of UBS Investment Bank, founded the firm. It has 580 employees in ten offices around world and manages $4.1 billion of assets. The deal is scheduled to close in few weeks.

Sumitomo is Japan's second biggest bank after the Mitsubishi UFJ Financial Group Inc.

Both have toeholds in the U.S. to build on. Sumitomo has commercial banking offices in California and Texas, and its U.S. headquarters in New York. It bought Citigroup Inc.'s Nikko Cordial Securities Inc. unit for $7.9 billion three years ago.

Mitsubishi in 2008 took full ownership of San Francisco's UnionBanCal Corp. for about $3.5 billion. It has not made a major acquisition since then, but it has been aggressively opening branches and staffing up on consumer lending and wealth management bankers.

The question is not so much whether the two companies can bulk up in the states but whether they want to. The U.S economic outlook is better but still dicey, and higher returns may lie in Europe where banks are flooding the market with relatively cheap assets.

Japanese banks are able buyers for a few reasons. Because Japan averted the worst of the global financial crisis, they are flush with deposits and enjoy the backing of an undemanding investor base that enables them to borrow at low interest. The country has a strong currency as well.

Matthew Monks

Reporter, American Banker