Japan banks eye return to global stageTOKYO - Mizuho Corporate Bank's decision to invest 130 billion yen (US$1.2 billion) in Merrill Lynch & Co could signal the beginning of a role reversal between Japanese and overseas financial institutions.
Having completed repayment of public funds following the cleanup in the wake of the mid-1990s bubble, Japanese banks are focused on bolstering their financial bases. On the other hand, European and US banks, which until recently had pursued investments, have seen their equity capital erode due to the effects of the US subprime mortgage crisis.
Whether Japanese banks will be able to take advantage of the investment opportunities before them will be a test of their operational skills and guts. Even so, they appear increasingly willing to look outwards, with Nomura Holdings, for example, recently discussing a cooperation plan between the group and Vietnam's State Capital Investment Corporation (SCIC).
Faced with a major post-bubble economy cleanup, Japanese banks scaled back their overseas operations starting in the mid-1990s. The moves were a far cry from the 1980s, when the country's banks snapped up overseas financial institutions. History has shown that countries in the middle of an uptrend in the credit cycle will plug their money into global financial institutions that need to bolster their credit.
But this time around, sovereign wealth funds from China and Singapore as well as the Middle East have played that role, taking major stakes in US and European institutions to shore up their finances.
Until now, Japanese banks had stayed on the sidelines. This is because their share prices suggest they are still far from a full-fledged recovery. In fact, Mizuho Financial Group's share price on Tuesday was hovering near a low before the news of its plan to invest in Merrill Lynch. Business leaders at the nation's megabanks, however, are growing confident.
"There are more investors willing to provide the funding as long as it's a good purchase," says a senior executive at a major bank.
Opportunities to invest in European and US financial institutions are expected to continue over the near term. But unless Japanese banks can show they can hold their own against their foreign counterparts, the stock markets are not likely to look on them kindly any time soon.
Meanwhile, opportunities are emerging in Asia's developing economies. Japan's leading financial group, Nomura Holdings, recently held a working session with Vietnam's Finance Minister Vu Van Ninh to discuss cooperation with SCIC.
According to Minister Ninh, SCIC and Nomura in 2007 signed a memorandum of understanding (MoU) to boost cooperation in improving management capacity, professional skills and personnel training.
Minister Ninh, who is chairman of the SCIC Management Council, said he hoped to see closer ties between the two sides in order to find effective models and methods in capital utilization for Vietnamese state-owned businesses and to improve management capability for staff of the SCIC and businesses.
Nomura's senior managing director Yoshinori Go said that under the MoU, Nomura had held a training course for SCIC staff. He said the two sides should form a daily connection for more effective cooperation.
He expressed his hope to see SCIC develop into a big group as Singapore's Temasek in the next five to 10 years.
Nomura, which provides financial solutions for businesses over the world, set up in Vietnam the Nomura Hai Phong Industrial Zone with 90% of its acreage leased out.