MUFG: Japan's internationalist
The bank's international strategy is on a global scale, but its expansion plan in Asia is the one to watch, as it aims to reshape the region's financial system.
Takayoshi Futae, COO of international for MUFG Bank
These are dismal times in Japanese banking. They have been for some time.
The demographics could not be worse, with an ageing and shrinking population that saves but doesn’t spend; interest rates are negative; and there is no culture of paying for advice.
Nobody has it easy in this environment, but MUFG is recognized for having the clearest plan to deal with the problem. Domestically, this is chiefly a combination of digital efficiency and the development of a western-style wealth management business in Japan. But it’s on the international side that MUFG really stands out.
There are several elements to the MUFG international strategy. Part of it is North American: the bank owns Union Bank, a vital source of dollar deposits; and its stake in Morgan Stanley, currently about 24%, has delivered twice over, firstly in financial terms as an investment, and secondly in bringing international ideas into the Japanese bank, creating a successful securities joint venture along the way.
More recently, the priority has been expansion in Asia. It considers four countries priorities: Vietnam, Thailand, the Philippines and Indonesia. No surprise there.
“MUFG’s optimism on Asia can be easily understood, as it is the region that is expected to maintain strong growth compared to other regions, and has the greater propensity to consume and develop economically,” says Takayoshi Futae, senior managing executive officer, who runs the global commercial banking business unit and is COO of international for MUFG Bank.
But what stands out is the way the bank has approached this expansion. In all four economies, since starting with a 20% stake in VietinBank in 2013, the Japanese bank has taken as big a stake as is available in a local player – usually not the biggest house, but a second-tier name.
In Thailand, MUFG owns 76.8% of Krungsri, also known as Bank of Ayudhya, which has now been converted into a subsidiary; in the Philippines it holds 20% of Security Bank; and in Indonesia, MUFG is in the midst of a three-stage process to acquire Bank Danamon. (As of April 2019, it had increased its stake to 94.1%.)
“With the acquisitions in place, we will now focus on working closely with each of our partner banks and accelerate collaboration,” says Futae.
And this is the point: the collaborative approach.
“We want to be able to tap on each other’s complementary strengths to build an unrivalled franchise for MUFG and our partner banks here in Asia,” Futae adds.
[MUFG allows] banks to continue to do what they are good at, maintaining their brand and approach but bolstered by MUFG’s capital, technology and corporate relationships
Generally, the approach has been to take a stake but allow banks to continue to do what they are good at, maintaining their brand and approach but bolstered by MUFG’s capital, technology and corporate relationships.
So, for example, with Krungsri it used its relationships with Japanese and European auto manufacturers, and brought them into Krungsri’s existing auto finance strengths. MUFG provided financing both to local dealers and to individual Thai customers wanting to buy cars.
“Together with Krungsri, we were able to capture the entire auto finance supply chain and create a win-win situation for automaker companies, Thai consumers, MUFG, and of course Krungsri,” Futae says.
The bank has also established joint ventures in Thai real estate between Japanese and Thai companies. It’s partly through operational efficiencies and this global network that Krungsri has now become one of Thailand’s designated domestic systemically important banks; Thailand’s unbreakable top four is becoming a top five.
While the subsidiary banks are largely left to do their own thing, there is some evidence of executives moving from the centre – and sometimes in the other direction too.
Sanjiv Vohra, formerly head of MUFG’s global corporate and investment banking division for Asia and Oceania, became CEO of Security Bank on July 1, while Bank Danamon’s CFO, Satinder Pal Singh Ahluwalia, will become managing director of the global commercial banking planning division of MUFG in October. In this role he will be responsible for promoting business collaboration and synergies between MUFG and its partner banks.
There are inevitably headaches along the way. Getting approval for a whole bank acquisition in Indonesia has been a challenge – others have tried and failed, notably DBS in its bid for the same bank – and although the successes in the Danamon negotiation have been impressive, the result was Danamon’s removal from local indices, prompting a fall in the share price and therefore the value of MUFG’s holding in it.
Futae says MUFG is not worried.
“We remain committed to the investment we have made in Bank Danamon,” he says. The share price doesn’t affect the group and “it does not detract us from our strategic intent, including our M&A strategy.”
Instead he highlights Indonesia’s economic strengths, demographics and resources.
“It plays an extremely important role in MUFG’s global commercial banking business strategy.”
The international expansion is closely associated with Nobuyuki Hirano, until recently chief executive and president of MUFG, and chairman of MUFG Bank. Hirano, with whom the MUFG brand is intrinsically linked on the world financial stage, was the man entrusted with making the Morgan Stanley acquisition work, and the one who decided how the bank’s Asean expansion would unfold.
Now Hirano is beginning to step back from the coal face; he has become chairman of the MUFG holding company, passing his president and CEO titles to Kanetsugu Mike. It remains to be seen what this transition will mean for international strategy, although Mike has previously run international operations for the bank in New York, and he studied at Wharton. His nickname, Sugu, means ‘right away’ and he is known to deplore endless meetings.
That sounds promising.