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Mizuho Takeover Trail Seen Leading to TMB Bank: Real M&A

Mizuho Financial Group Inc.’s (8411) fruitless search for profit growth in Japan is pushing the lender on an acquisition hunt through Southeast Asia that may lead to Thailand’s TMB Bank Pcl (TMB) or PT Bank Pan Indonesia.

Burdened with the lowest loan margins of Japan’s three biggest lenders, Tokyo-based Mizuho may spend as much as $5 billion on deals to help boost earnings, said BNP Paribas SA. Japan’s decision to fight deflation with low interest rates has already turned the nation into Asia’s least lucrative lending market, according to data compiled by Bloomberg.

As analysts forecast two years of profit declines at Mizuho, a stake in Bank Pan Indonesia, known as Bank Panin, offers access to faster economic growth and Southeast Asia’s largest population, said JPMorgan Chase & Co. Mizuho also may consider buying part of TMB to finance Japanese manufacturers in Thailand, CLSA Asia-Pacific Markets said.

“In Japan, loan growth is slow and profitability is weak,” Natsumu Tsujino, a Tokyo-based analyst at JPMorgan, said in a phone interview. “For Mizuho to grow, it has no choice but to go overseas.”

Mizuho, Japan’s third-biggest bank by market value, has been less acquisitive overseas in the past five years than its two main domestic rivals -- Mitsubishi UFJ Financial Group Inc. (8306) and Sumitomo Mitsui Financial Group Inc., data compiled by Bloomberg show.

Photographer: Brent Lewin/Bloomberg

Customers exchange money at a TMB Bank Pcl. branch in Bangkok. Profit at TMB is projected to more than triple this year to the equivalent of $194.3 million and jump 38 percent in 2014. Close

Customers exchange money at a TMB Bank Pcl. branch in Bangkok. Profit at TMB is... Read More

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Photographer: Brent Lewin/Bloomberg

Customers exchange money at a TMB Bank Pcl. branch in Bangkok. Profit at TMB is projected to more than triple this year to the equivalent of $194.3 million and jump 38 percent in 2014.

Acquisition Budgets

Mitsubishi UFJ, Japan’s biggest bank, in July offered to buy as much as 75 percent of Thailand’s Bank of Ayudhya Pcl for $5.6 billion, while Sumitomo Mitsui agreed to purchase 40 percent of Indonesia’s PT Bank Tabungan Pensiunan Nasional for about $1.5 billion in May.

Mizuho may be able to spend as much as 300 billion yen ($3 billion) on deals, said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. Toyoki Sameshima, a Tokyo-based analyst at BNP Paribas, said the bank could accrue 500 billion yen of excess capital in the next three years to spend on acquisitions.

“There’s a high chance they will use extra capital to fund M&A,” Sameshima said in a phone interview. “They are expecting to accumulate more capital.”

Mizuho’s Tier 1 capital ratio -- a key measure of a bank’s financial strength -- rose to 11.4 percent as of June 30 from 11 percent three months earlier, the company said last week.

Today, shares of Mizuho were unchanged at 206 yen. Japan’s benchmark Topix Index added 0.6 percent.

Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk past the Mizuho Financial Group Inc. headquarters in Tokyo. Mizuho, Japan’s third-biggest bank by market value, has been less acquisitive overseas in the past five years than its two main domestic rivals -- Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., data compiled by Bloomberg show. Close

Pedestrians walk past the Mizuho Financial Group Inc. headquarters in Tokyo. Mizuho,... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Pedestrians walk past the Mizuho Financial Group Inc. headquarters in Tokyo. Mizuho, Japan’s third-biggest bank by market value, has been less acquisitive overseas in the past five years than its two main domestic rivals -- Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., data compiled by Bloomberg show.

Bank Panin fell 5.8 percent to 650 rupiah in Jakarta and TMB Bank slid 4.8 percent to 2.4 baht in Bangkok.

Smallest Margins

Yet banks in every other Asian market are squeezing more profit from loans. Japan’s biggest lenders eke out average net interest margins of 1.09 percent, data compiled by Bloomberg show. Indonesian margins, the highest in Asia, are six times wider, based on companies with market values exceeding $5 billion. In Thailand, lenders are three times as profitable. Mizuho’s margin from lending is 0.75 percent compared with 0.94 percent at Mitsubishi UFJ and 1.28 percent at Sumitomo Mitsui.

Mizuho’s net income will fall 2.4 percent to 547 billion yen in the year ending March 2014, and 5.3 percent in the following 12 months, based on analysts’ estimates compiled by Bloomberg.

Bangkok-based TMB, with a market value of about $3.4 billion, would appeal to Mizuho because many of the Japanese bank’s corporate customers have manufacturing assets in Thailand, said David Threadgold, an analyst at Keefe Bruyette & Woods Inc. in Tokyo.

“It would be a very natural place for Mizuho to look,” he said in a phone interview. “There aren’t some of the geopolitical issues that can complicate relationships.”

Growth Projections

ING Groep NV, based in Amsterdam, may seek bids for its stake in TMB as soon as this month, Thai language newspaper Kao Hoon reported in July, without saying where it got the information. The Thai Ministry of Finance is also a top shareholder in TMB.

Profit at TMB is projected to more than triple this year to the equivalent of $194.3 million and jump 38 percent in 2014. TMB’s lending business is more than twice as profitable as Mizuho’s, data compiled by Bloomberg show.

“It’s certainly one they will take a look at,” Brian Waterhouse, an analyst at CLSA in Tokyo, said in a phone interview. “They’ve got the cash and capital to do it.”

In Indonesia, Australia & New Zealand Banking Group Ltd. (ANZ) is in talks to sell its 39 percent stake in Jakarta-based Bank Panin to Mizuho, a person with knowledge of the matter said last week. That holding had a market value of about $621 million on Aug. 16. Bank Panin is Indonesia’s seventh-largest bank by assets out of the country’s 120 commercial lenders.

Malaysian Target

Mizuho also may target Malaysia’s Malayan Banking Bhd. (MAY), said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. The companies struck a provisional banking alliance in 2009. Mizuho Chief Executive Officer Yasuhiro Sato said in February the bank even has scope to buy a U.S. commercial bank.

Representatives for Mizuho, TMB, ANZ and Maybank declined to comment. A Jakarta-based spokesman for Bank Panin didn’t respond to requests for comment.

Japanese Prime Minister Shinzo Abe’s monetary and fiscal stimulus policies have helped fuel a 50 percent jump in the Topix Index in the past year. That makes Mizuho more able to do deals, said Threadgold at Keefe Bruyette & Woods.

“They have a relatively high domestic equity exposure and the rise in the stock market has significantly improved their capital position,” he said. “It gives them more flexibility than they had a year ago.”

Corporate Focus

Mizuho’s focus on corporate and investment banking makes it less equipped than its larger Japanese rivals to run an overseas retail bank, according to David Marshall, an analyst at CreditSights Inc. in Singapore. That means such companies in Thailand and Indonesia aren’t logical targets, he said.

“It’s not so obvious what Mizuho could add to a retail franchise,” Marshall said in a phone interview. “Mizuho doesn’t have the same consumer-banking expertise.”

That won’t stop Mizuho from considering bids, according to Waterhouse, the CLSA analyst.

Investing in an overseas bank provides “a ready-built branch network, a ready-built customer base and ready-built customer deposits,” he said.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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