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Stocks

Japanese megabanks trying investors' patience on payouts

TOKYO -- Having performed shabbily in the stock market for months now, Japan's three biggest banks are facing ever-louder calls for spicier shareholder returns.

     Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group did manage some impressive gains early in the Abenomics rally. They rose on hopes that a resurgent economy would breathe new life into their lending business, but the Bank of Japan's easy-money policy has undercut loan rates.

     Japanese bank shares are trading at just 0.67 times book value -- a smaller multiple than any other sector save marine transport and pulp and paper. Disappointed megabank shareholders lament that they thought they were getting a bargain at that level.

     Unsurprisingly, investors want a greater return on their money. Some of those whom Mizuho President Yasuhiro Sato met with in the U.S. last week were receptive to the group's new dividend payout ratio target of 30%. But others said it was not high enough. MUFG also has a 30% payout ratio "in mind," President Nobuyuki Hirano told an earnings conference recently, stressing that the group will maintain a "stable dividend."

     In contrast, American banks not infrequently pay out upwards of 60% through dividends and share repurchases. JPMorgan Chase has been buying back stock quarterly, having said in April that it would make $6.5 billion in repurchases over the coming year.

     "Foreign investors are increasingly frustrated with what they see as little prospect of improvement in megabanks' capital efficiency," says Shinichiro Nakamura, senior analyst at SMBC Nikko Securities.

     The banks, for their part, are eager to channel cash into overseas acquisitions. SMFG will "increase value for shareholders sustainably by investing in growth and raise our dividend in a stable manner," President Koichi Miyata says. But from shareholders' perspective, megabanks tend to overpay in such deals.

     "Megabanks need to show an inclination toward both growth and shareholder returns," says Ken Takamiya, managing director at Nomura Securities.

     The trio insists that they cannot rush to increase payouts until they know the full extent of forthcoming international rules for bank capital. But this message is starting to wear thin with investors.

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