Japanese financial institutions are increasing their purchases of affiliates or businesses from US and European counterparts following the European debt and financial crisis.
The trend is likely to continue, as Japanese financial institutions incurred much smaller losses in the European crisis than their US and European counterparts, and the extremely high yen works to their advantage in such acquisitions.
However, there are hurdles to overcome, including how the Japanese companies should manage operational risk overseas.
“There are quite a number of offerings [from US and European financial institutions and others]. So Japanese firms are keeping their eyes open and making careful selections,” a senior official of a major financial institution said.
According to mergers and acquisitions adviser Recof Corp., there were seven such overseas purchases by the nation’s banks during the January-June period, already surpassing the six seen all last year.
On Wednesday, Mizuho Corporate Bank said it would buy the midsized Brazilian bank Banco WestLB do Brasil from German bank WestLB. Earlier this month, Shinsei Bank bought overseas remittance operations for individual customers in Japan from the Britain-based Lloyds Banking Group.
In the life insurance industry, Dai-ichi Life Insurance Co. recently made an offer to the Netherlands’ largest financial firm, ING Group, to buy its life insurance division in Asia.
Bitter lessons from the past
Japanese firms seem to be strengthening their presence overseas. However, they have had the bitter experience of being forced to sell numerous operations abroad from the late 1990s-despite competing to buy them during the bubble period-due to difficulties disposing of bad loans.
Fuji Bank, the predecessor of Mizuho Corporate Bank, in 2001 sold the two affiliates it bought from U. S. finance company Heller Financial Inc. in 1984 to a US major financial institution to eke out money to dispose of bad loans.
Sanwa Bank, a predecessor of the Bank of Tokyo Mitsubishi UFJ, sold in 1998 a US leasing company it purchased in 1984.
Challenges for the future
Japanese firms mainly bought US institutions in the 1980s. This time, however, their purchases and investments are focused on tapping into demand in emerging economies in Asia and elsewhere.
Mizuho Corporate Bank is the main bank in Asia for the Italian brand Prada, which is emphasising the Asian market.
Sumitomo Mitsui Financial Group is moving to expand its strength in the Asian market, including the establishment of a special department dealing with loans to the overseas businesses of Samsung Electronics Co. and other companies affiliated with South Korean conglomerates.
There are many cases, however, in which overseas equity investments or acquisitions by Japanese firms do not directly lead to profits.
Nomura Securities Co. bought the European division of the collapsed Lehman Brothers Holdings Inc. in 2008. Nomura Securities is still working to cut costs and rebuild its operation.
Furthermore, with high expectations for growth, businesses in newly emerging nations are going for high prices.
There is no guarantee Japanese companies will see profits worth their acquisition costs.
Shinshu University Prof Akio Makabe said that since business practices or accounting standards in newly emerging nations differ largely from those in Japan, the question is how Japanese firms will nurture human resources that can manage businesses.
Drawing on lessons from the past, Japanese firms are expected to be obliged to secure human resources and build a growth model matching the actual circumstances in those nations.