Asiamoney best bank awards 2019: Japan
Best domestic bank: MUFG
|Kanetsugu Mike, MUFG Bank
The last 12 months could have been a tricky time for MUFG, with the transition from Nobuyuki Hirano to Kanetsugu Mike in the chief executive and president roles at the group level. But when one meets the two men, one is struck by the similarity: internationally minded and influenced, fluent in English, big thinkers, willing to shake things up.
It’s just as well, as Japanese banking needs plenty of thinking and shaking up. Mike is continuing a six-year restructuring programme (they call it ‘reimagining’, but each to their own) whose imperatives include cost reduction, a slimming of risk-weighted assets, tech innovation, Asean expansion and a total reinvention of the wealth management business.
The last of these will be the clincher. The great headache of wealth management in Japan is that there is a vast amount of individual wealth – Y1,800 trillion (or $16.6 trillion) in household financial assets – but nobody seems to want to spend or invest them.
More than half is dormant in bank accounts, and in a negative-yield environment one has to wonder what is going to coax that money out into productive investment.
One challenge is that it is mainly held by the elderly, who don’t wish to take risks and who remember the bubble bursting; another is that there is no tradition at all for paying for advice.
Every bank in Japan has the same idea of changing its approach, message, channels and structure around wealth, but MUFG does have the considerable advantage of drawing on Morgan Stanley’s US expertise. Branches are being changed to become places for advice rather than processes; digital methods of reaching investors are being revamped.
It is a big ask but a necessary attempt to solve the considerable problem of banking a country with a shrinking population, ageing society and a climate of negative yields.
The other standout is international expansion, in which MUFG clearly leads the megabanks. It continues to wrestle with getting the best from its US franchise, but in Asean it stands out, with the Bank of Ayudhya deal a role model for any foreign bank wanting to make the best of an acquisition in Asia, allowing the bank to continue to do what it is good at while supporting it with money, clients and tech.
MUFG is now exposed to high-growth markets that will help it make the painful changes, both practical and cultural, that need to happen at home.
Best corporate and investment bank: MUFG and Morgan Stanley
|Alberto Tamura, Morgan Stanley
The combination of Morgan Stanley and MUFG, forged from the global financial crisis, has delivered extraordinarily well in Japan, where the two groups formed a surprisingly successful joint venture that has confounded expectations of insurmountable cultural challenges.
The bank stands comparison with any international or domestic player, and its point of differentiation is that it does both at the same time. Data from Dealogic show that during our review period, Morgan Stanley – whose statistics include those from the JV – generated almost three times as much investment banking fee revenue as the next foreign bank, JPMorgan, which itself is considered to have had an excellent year. And domestically, when pitted against the likes of homegrown Nomura, it still ranks top three in equity capital markets, domestic DCM, Japanese issuer dollar bonds (where it clearly leads) and international yen bonds.
This has been a year for M&A, and although the venture was not on the definitive Takeda-Shire deal in an advisory role (it instead handled the euro and dollar bonds for the M&A financing), it was on numerous other landmark transactions. The sale of ABB to Hitachi represented a newly streamlined and focused Hitachi now able to purchase international assets better suited to its model.
The issuance of new Yahoo Japan shares to SoftBank, and repurchase by self-tender, was big and sensitive. The acquisition of Magneti Marelli by Calsonic Kansei, through CK Holdings, was a good cross-border deal following Morgan Stanley’s previous advice to KKR in buying Calsonic Kansei in the first place, kicking off the trend of US private equity buyouts in Japan. Tokyo Century buying Aviation Capital Group was a strong example of outbound cross-border ambition.
Nobody had a good year in ECM last year, and being on the record-breaking SoftBank KK IPO is a mixed blessing, given the deal’s immediate performance. But there were better, smaller deals with Morgan Stanley involved, notably the Recruit Holdings Y374.1 billion ($3.4 billion) global follow-on and a euro-yen convertible for Takashimaya.
In debt, the JV handled a $2.5 billion benchmark from Panasonic, the first such deal from the issuer since 1992. Kansai Electric’s $500 million deal was the first non-yen benchmark bond for 10 years. Morgan Stanley considers deals such as this de-facto IPOs, such has been their absence from the market and the need to tell their story.
In domestic debt, the group is among the leaders in domestic yen, corporate hybrids and ESG. All told, Japan chief executive Alberto Tamura and head of investment banking Haruo Nakamura preside over a business with no obvious weakness.
Best international bank: JPMorgan
|Steve Teru Rinoie, JPMorgan
A few foreign investment banks are smiling in Japan right now, benefiting from a new wave of corporate governance and investor activism that has led to conglomerates starting to hive off non-core businesses and focus on what they are really good at. The result: vibrant M&A opportunities.
Among the Americans – and it really is the Americans who lead the field in foreign investment banking in Japan – JPMorgan stands out for the range of transactions it has been involved in.
The headline deal was Takeda Pharmaceutical’s $62 billion stock and cash acquisition of Shire, for which JPMorgan was the financial adviser before also being lead arranger, lead bookrunner and administrative agent for Takeda’s $31 billion bridge facility.
Other M&A assignments in the last 12 months have included being lead financial adviser to Idemitsu Kosan on its business combination with Showa Shell through a $3.8 billion share exchange, and advising JXTG Nippon Oil & Energy on the sale of its cell culture media business, Irvine Scientific, to Fujifilm.
In the capital markets, JPMorgan has been active in all disciplines. Equity capital markets highlights over the last two years have included being joint global coordinator and joint bookrunner in both the Japanese and international tranches of Japan Post’s $3.2 billion follow-on offering, joint global coordinator for SoftBank’s Y2.65 trillion ($24 billion) global IPO and advising Altaba on the capital markets sale of much of its holdings in Yahoo Japan to SoftBank. DCM has included leading a $910 million 144a/RegS hybrid bond for Mitsui Sumitomo Insurance – it is consistently strong in hybrids – and a $1.5 billion three-tranche bond for Toyota.
Senior country officer Steve Teru Rinoie and investment banking head Masataka Yamada run a business with strength across the board.
Asiamoney decided to consider Morgan Stanley as a special case this year, since its joint venture with MUFG in Japan includes both international and local expertise.
Best private bank: Mitsubishi UFJ Morgan Stanley PB Securities
|Satoru Adachi, Mitsubishi UFJ Morgan Stanley PB Securities
Notwithstanding the grand ambitions for private wealth management in Japan, it was a tough year for these businesses, all of which saw declines in profitability during our review period in the face of difficult market conditions.
Mitsubishi UFJ Morgan Stanley PB Securities, which lost ground too, is still clearly profitable, and its clients still think it is the best option in Japan. In Euromoney’s 2019 private banking and wealth management survey, it swept the board, winning in best private banking services overall, all classes of ultra-high and high net-worth clients, asset management, family office, philanthropy, ESG and succession planning.
The business is big, with 527 employees, including 250 advisers, and with Y3.39 trillion ($31 billion) of client assets as of March 31, 2019 (that figure at least is going up). It’s also the first to introduce an advisory business in a concerted, enterprise-wide fashion, having launched full-scale to clients in 2017. This has to be the future for private wealth as traditional brokerage models decline.
In another sign for the future, annuity revenue accounted for 23% of net revenue in the 2018 financial year, a number that will likely rise in future.
While some see automation as a threat – which it is to person-to-person brokerage models – this group has sought to embrace it, introducing robotic process automation to replace some back-office work, and reducing more than 8,000 working hours in the process.
Reinventing private wealth in Japan is not going to be an easy task for president Satoru Adachi, and will take a generation. But Mitsubishi UFJ Morgan Stanley PB Securities looks like the institution best placed to attempt it.
Best digital bank: Rakuten Bank
|Hiroyuki Nagai, Rakuten Bank
Rakuten Bank is shaking up Japanese financial services by doing what people said could not be done: turning cash-loving Japanese towards digital applications, wallets and smartphone apps.
Unquestionably Rakuten Bank is helped by being part of the Rakuten e-commerce group; the natural analogy is to think of it as the Ant Financial to Alibaba. Rakuten senior is a trusted and powerful brand in Japan that has given a vast head start to its banking subsidiary, and to the other relevant parts of its ecosystem, including the card, securities and insurance subsidiaries.
It has built on that advantage extremely well. This year it passed eight million accounts, having accrued the last million in 10 months; it is well on track for the 10 million that its executives believe will give it a critical mass.
Even before reaching that target, president Hiroyuki Nagai has built a bank that is profitable, which is not always the case with digital endeavours; in fiscal 2018, core net business profit was ¥27 billion ($250 million). Also, it’s not just about accounts, which can sometimes mask a dearth of assets or profitability. The home-loan balance has reached almost ¥500 billion with 30% year-on-year growth.
Like other digital leaders – such as Korea’s kakaobank – the utility of the offering rests on a single bank app that is a gateway to everything else. Behind that, new things are happening: new services added in the last 12 months include Rakuraku Warikan, a method of splitting payments such as a restaurant bill; a new convenience-store payment facility; and a steady extension of corporate services ranging from business credit cards to bank business loans, mass payment methods and international remittance services.
Though Rakuten subsidiaries are all legally separate entities, the bank’s Money Bridge service connects it directly to Rakuten Securities. The result – and this is once more an echo of Alibaba/Ant or Tencent/WePay – is an ability to put the service at the heart of a customer’s lifestyle, and, through convenience, make it simultaneously simple and essential. There is much more growth to come.
Best bank for SMEs: SMBC
The truth is that domestic banking of small and medium-sized enterprises is not a core priority for any of the megabanks – it is to a large extent still served on the ground by regional and local banks – but SMBC shows the clearest sense of direction among the top three.
First-quarter numbers show that the average loan balance to medium-sized corporations and SMEs at SMBC grew modestly to Y17.6 trillion ($162 billion), which makes it the largest constituent of the domestic loan balance, ahead of large corporations and individuals. Though the domestic corporate loan spread to SMEs has been steadily falling, given the interest rate environment, it is still above that of large corporations. SMBC has said it expects the loan spread decline in this area to bottom out during this financial year.
Outside Japan, the Asian Development Bank and SMBC signed an agreement in April to promote over $100 million of trade across developing Asia annually. This is an attempt to facilitate trade flows at a time when they are under pressure from macroeconomic developments.
SMBC is present in 14 Asian countries, and trade and supply-chain work in the region is central to its strategy. SME banking is a large part of the combined SMBC/BTPN business in Indonesia, for example.
The agreement follows the launch of a new loan product by SMBC in October 2018 designed to promote sustainable development goals (SDGs) at SMEs. The loan includes a subsidy that partially pays the credit guarantee fee of clients if they have prepared a management plan that covers the SDG initiatives. During the term of the loan, SMBC also provides support to clients.
Best bank for CSR: Bank of America
|Reiko Hayashi, Bank of America
Corporate social responsibility and sustainability are central to the Bank of America ethos, from the top executives down to the scrupulously regimented office bin policies. The bank’s drive has one of its most important advocates in Reiko Hayashi, the deputy president for Japan and a long-standing figure in the development of the country’s debt capital markets.
Hayashi was involved in the first green bond from Japan, when Bank of America Merrill Lynch (as it was then) was structuring agent for Development Bank of Japan in 2014, and has been central to the establishment of this now crucial corner of the Japanese capital markets ever since.
Hayashi was one of the advisers to the ministry of the environment when it developed green bond guidelines, and she serves as a member of the council for promoting the sustainable development goals (SDGs) in the security industry at the Japan Securities Dealers Association.
More recently she was made a board member of the International Capital Market Association, the only Asia-based representative (Ken Hu, also on the board, is from the London branch of Bank of China). In this role she is able to convey to the largely American and European board the different challenges and opportunities around sustainability issuance in Asia.
“It is quite meaningful to be able to present the Asian situation, especially around green bonds,” she says. “That’s one of the reasons I accepted the role.”
It is a surprise to many that one in seven Japanese children lives in poverty, and Bank of America has given grants to five NGOs supporting women and children in difficulty.
Hayashi was shocked after visiting victims of the devastating Great East Japan earthquake and tsunami in 2011, and the programme grew from there.
Bank of America also runs an arts conservation project that funds the restoration of Japanese historical treasures.
The two most senior people in Bank of America in Japan are women – which is extremely unusual in a financial services industry still dominated by men. Tamao Sasada is the president of the Japan operation and has had an important role in driving CSR herself: she is one of two members from Asia on BofA chief executive Brian Moynihan’s global diversity and inclusion council. The two women are rare female role models in Japanese banking.