Japanese banks continue their buying spree

International asset-building seems far from over for Japanese megabanks, in a bid to diversify and seek growth opportunities away from a subdued domestic market

Keith Mullin
Keith Mullin

Japanese banks’ thirst for cross-border banking assets is carrying on unabated as their pivot for growth continues to switch to international markets as a foil to low growth, less than stellar business opportunities and slim margins at home. In the latest of a long line of chunky portfolio and business acquisitions by Japan’s mega commercial banks, MUFG Bank just acquired the aviation finance division of German transportation specialist DVB Bank, a unit of DZ Bank.

DVB’s aviation finance division arranges and provides financing for a range of passenger and freight aircraft across the gamut of products, from bridging loans to complex long-term facilities. In bagging the acquisition, MUFG reportedly beat out interest from Orix Corp and Macquarie Bank.

DVB’s aviation division had a client lending portfolio of some 5.4 billion euros (US$6.14 billion) as of June 30 2018; DVB employees and other parts of the operating infrastructure will go with the acquisition. As will DVB's aviation investment management business (a fund management operation focusing on investment advisory and investment in aviation equity instruments) and the bank’s asset management businesses, which is engaged in aircraft remarketing and technical management.

For MUFG, acquiring DVB’s aviation division came a matter of weeks after the Japanese mega-lender’s MUFG Union Bank subsidiary in the US signed an agreement with GE Capital to acquire Trade Payable Services (TPS), a leading supply chain finance platform, to expand its working capital solutions.

For DVB’s parent, Germany’s DZ Bank, the sale is a key component of a concerted effort to sell DVB’s divisions piecemeal after its original intention of an outright sale of the whole bank failed to get off the ground. At the end of last year, DVB Bank closed on the sale of its land transport division (with a total lending portfolio of 1.4 billion euros at June 30 2018 predominantly rail and related assets) to fellow German lender Helaba. MUFG had been reported to be interested in bidding for the entire bank, as were Bank of China and ICBC.

Since the global financial crisis, the Japanese banks have opportunistically but at the same time systematically set about a process of cross-border asset-building; opportunistic as it has taken advantage of US and European banks’ rapid post-crisis deleveraging. As well as shrinking their asset bases, this process involved strategic refits at the business-line level and resulted in US and European banks updating their business profiles to focus on core activities.

In 2015, Mizuho acquired RBS’s US$36.5 billion US and Canada loan portfolio along with some 200 bankers, adding a further US$5.6 billion of assets in a subsequent deal. In that same year, SMFG closed on the US$2.2 billion acquisition of General Electric’s European sponsor finance business, a business offering unitranche, direct lending and other forms of financing to private equity-backed European mid-market companies. The deal included most of the front-office financiers working in that business.

In 2012, Sumitomo Mitsui Financial Group and Sumitomo Corp jointly acquired RBS Aviation Capital, RBS’s leading aircraft leasing business, in a US$7.2 billion deal; China Development Bank had also been an interested bidder for that business. In 2011, SMFG bought project finance loans from Bank of Ireland for 470 million euros. In 2010, MUFG bought RBS’s EMEA project finance assets and associated derivatives valued at 3.3 billion pounds (US$4.37 billion).

For the Japanese banks, this was always intended to be a lot more than merely acquiring assets and associated cashflows: it was as much about giving them immediate access to a suite of clients and expertise they didn’t previously possess.

In the statement announcing the DVB aviation acquisition, Masato Miyachi, MUFG's senior managing corporate executive said aviation finance is a key growth pillar for MUFG. That speaks to another dimension of the acquisitions: businesses such as object finance (the acquisition of physical assets such as ships, aircraft, satellites, railway rolling stock and auto fleets) and leveraged finance offer better margins than straight corporate loan assets.

In recent years, the Japanese mega commercial banks have all taken steps to try and evolve their loan-dominated international business profiles into more rounded corporate and investment banks. At the end of 2018, Mizuho, MUFG and SMFG ranked first, second and third in global syndicated lending (ex-US) with a combined market share of 17.1%. Having established solid footholds in a suite of international markets by making their enormous balance sheets available to clients through lending and corporate banking (including transaction banking), their strategies now see them attempting to monetize and diversify their profiles through products higher up the value chain, including in advisory, cross-border capital markets and leveraged finance, with less reliance on business from Japanese corporations.

This has been far from easy to achieve amid tough competition, especially in the US, which MUFG, Mizuho and SMFG have all targeted. Industry observers have started second-guessing the longevity of Japanese banks’ appetite to continue investing through the cycle to create and sustain that diversification. Are MUFG’s DVB and TPS acquisitions some sort of strategic mean reversion? While that remains to be seen, observers will point to them as being much more representative of its core comfort zone.


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