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Business

Japan's big banks snap up assets of downsizing Western counterparts

TOKYO -- Japanese megabanks are increasingly purchasing the assets and businesses of European and U.S. financial institutions. General Electric's planned sale of its Japanese leasing business has drawn the interest of many.

     Stagnation in the European economy, as highlighted by the Greek debt crisis, is prompting Western banks to sell assets and operations, with Japanese banks stepping in as purchasers. U.S. financial institutions are also streamlining as international capital regulations tighten.

     Japanese banks, meanwhile, continue to post record earnings thanks to economic and market improvements in Japan, owing in part to the policies of Prime Minister Shinzo Abe. Flush with cash, they are eager to grow through acquisitions. "We first approach Japanese banks whenever we have something to sell," an official at a U.S. investment bank said.

     This past February, Mizuho Financial Group agreed to take over RBS' loans to around 200 North American companies. "We will be able to take our overseas business to the next level," said the Mizuho Bank manager in charge of such operations.

     By bringing aboard the British bank's customers as its own, Mizuho hopes to serve as managing underwriter for bond issuances and help companies with low credit ratings to issue bonds.

     Mitsubishi UFJ Financial Group, the strongest of the three megabanks in international operations, said in June that Mitsubishi UFJ Trust and Banking will buy the fund administration business of European financial giant UBS. The deal will make the Japanese bank among the world's top 10 in terms of assets managed by hedge funds and others, helping the group cultivate a stable earnings source.

     Almost seven years have passed since the financial crisis of 2008, but Europe-based banks are still having to re-examine their business models and search for ways to optimize the scale of their operations, says a Mizuho Bank official, adding, "more deals are likely to surface."

     At the end of June, Sumitomo Mitsui Banking Corp. clinched a deal to take over GE's loans to around 100 midtier companies in Europe. The sponsor finance loans -- financing for transactions backed by private-equity firms -- offer higher interest income than conventional loans. An SMBC staffer said the deal could open up opportunities for acquisition-related businesses in the future, noting that the group can introduce Japanese investors when the firms are ready to unload their investment.

Hot deal of the summer

GE's planned sale of its Japanese leasing business is seen drawing many interested buyers. The business, which covers such as categories as personal computers and cars, has estimated assets totaling around 500 billion yen ($4 billion) and a staff of around 1,000. GE is planning an auction, the first round of which is expected as early as next month. The U.S. conglomerate hopes to complete the transaction within the year.

     With the Japanese leasing market already saturated, acquisitions are the only way for Japanese banks to expand their market share. So the major players are seriously considering this rare opportunity.

     The three megabanks, Sumitomo Mitsui Trust Bank and Shinsei Bank, as well as Orix, are all showing interest. Solo and joint acquisitions are being considered behind closed doors.

     Immediately after the financial crisis, Mitsubishi UFJ invested in Morgan Stanley, and Nomura Holdings purchased an operation from Lehman Brothers. Back then, businesses were practically being dumped by U.S. and European companies, but now prices are not so cheap.

     Western companies are moving quickly in accordance with regulatory changes and political trends, says Ken Takamiya, an analyst at Nomura Securities.

     A competitive auction comes with the inherent risk of buyers having to pay a hefty price. Japanese megabanks need to keep a cool head based on the business environment as they seek acquisition opportunities.

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