TOKYO -- Japanese megabanks plan to improve their financial strength by floating large amounts of bonds, compelled by upcoming regulations and today's favorable fundraising environment.
Mizuho Financial Group aims to issue $1 billion or more of a new type of bond as early as April.
The Financial Stability Board, which includes officials from Japan, the U.S. and European countries, developed the "total loss-absorbing capacity" standard to reduce the risk of systemically important banks threatening global financial stability. These banks will have to raise TLAC to at least 16% of risk-weighted assets by 2019 and at least 18% by 2022. They will thus need to enlarge such financial cushions as capital and bondholdings.
Mizuho seeks to issue TLAC bonds -- a loss-absorbing security whose holder must eat losses if the issuer goes bust. Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group have already raised $5 billion and $4 billion by issuing TLAC bonds. Demand reached double to triple the issuance amounts because the duo's 10-year TLAC bonds offered double the yields of 10-year U.S. Treasurys.
In these circumstances, Mizuho aims to expand its TLAC bond offering to around $2 billion if demand warrants.
The three megabanks will need to issue 4 trillion yen to 5 trillion yen ($35.4 billion to $44.2 billion) in TLAC bonds alone by 2019 to meet tougher international financial standards drawn up in response to the global financial crisis, according to some estimates. The figure could rise to around 7 trillion yen by 2022.
Fortunately for them, central banks including the Bank of Japan have created an ideal fundraising environment by continually bolstering easy-money policies. The Japanese megabanks have made an early start in TLAC bond offerings because they expect others, including Chinese banks, to start stepping up their own fundraising efforts to meet new international standards.
Insurers joining the party
Japan's Financial Services Agency is leaning toward applying international financial standards to major life and nonlife insurance companies around 2020. These insurers will likely seek to raise funds via bond issuances as well.
Some are already planning major bond issuances. Sompo Japan Nipponkoa Insurance is working to offer 200 billion yen or so in subordinated bonds in fiscal 2016 to strengthen capital, with an eye toward growing overseas operations via large-scale merger and acquisition deals. The company is a unit of Sompo Japan Nipponkoa Holdings.
Nippon Life Insurance is considering issuing 100 billion yen to 200 billion yen in subordinated bonds as part of plans to increase its capital by 1 trillion yen in the three years starting fiscal 2015.