Sumitomo Mitsui Financial Group Inc., Japan’s second-largest bank by market value, may spend as much as $5 billion buying a stake in a U.S. commercial lender in the next three years, a top executive said.
“We can’t overlook the U.S. market in terms of stable returns and size,” said Hiroshi Minoura, head of international banking at Sumitomo Mitsui Banking Corp. “We need to push forward with investments, including acquisitions, that allow us to capture a large volume of assets.”
Sumitomo Mitsui, which agreed to invest in India’s Kotak Mahindra Bank Ltd. last month, is studying about 20 U.S. banks, Minoura said in a July 7 interview. An acquisition in the world’s largest economy would support Sumitomo Mitsui President Teisuke Kitayama’s goal of getting 30 percent of banking profit from clients overseas within three years, up from 20 percent last fiscal year.
Minoura said Sumitomo Mitsui won’t be able to meet that target “organically.” He said he’ll likely target banks in the U.S. Midwest or East Coast, declining to name any companies. Tokyo-based Sumitomo Mitsui raised 1.8 trillion yen ($20 billion) in two stock sales since June 2009 to replenish capital.
U.S. banks that are weak or nominally profitable would be more willing to sell a stake, said Jeff Davis, an analyst at Guggenheim Securities LLC.
Sumitomo Mitsui may consider Huntington Bancshares Inc., KeyCorp or Fifth Third Bancorp as potential targets, Davis said, as the three Ohio-based banks are among those that have yet to repay aid from the U.S. Treasury Department’s bank-bailout program. Dallas-based Comerica Inc., which repaid $2.25 billion in rescue funds, may also be a candidate, he said.
Sumitomo Mitsui fell 2.3 percent to 2,617 yen as of 10:03 a.m. in Tokyo Stock Exchange trading. The shares have fallen 26 percent in the past year.
While the bank isn’t in any detailed talks now, the size of an investment would probably be $1.5 billion to $5 billion, depending on the target’s size, said Minoura, 54.
“It doesn’t necessarily mean that the size is 100 percent,” he said. “It may be 20 percent and it may be 100 percent.” Minoura said he’d prefer to buy a majority stake, though a minority investment is also a possibility.
“Probably the ideal target would be one that needs additional capital, because they’re more likely to say yes,” said Davis, who predicted in July 2008 that the U.S. would experience a “couple hundred” bank failures. Regulators have closed more than 240 banks since then.
William Murschel, a spokesman for KeyCorp, declined to comment. Maureen Brown, a spokeswoman for Huntington, and Debra DeCourcy of Fifth Third didn’t immediately respond to messages seeking comment.
Sumitomo Mitsui operates commercial banking offices in Los Angeles, San Francisco and Houston, according to the bank’s website. Its U.S. headquarters are located in New York.
Japanese banks are targeting overseas markets including the U.S. to compensate for slumping credit demand at home. Bank lending fell for a seventh straight month in June, the Bank of Japan said yesterday.
Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded bank, spent about $3.6 billion in 2008 to take full control of San Francisco-based UnionBanCal Corp. In April, UnionBanCal bought Washington-based Frontier Bank and California lender Tamalpais Bank in agreements with the Federal Deposit Insurance Corp.
Stricken Western banks
Japan’s largest lenders also poured cash into stricken Western banks in 2008 as the credit crunch deepened. Sumitomo Mitsui invested 500 million pounds ($760 million) in Barclays Plc in July 2008; Mitsubishi UFJ paid $9 billion for a stake in Morgan Stanley; and Mizuho Financial Group Inc. invested $1.2 billion in Merrill Lynch & Co. that year.
Sumitomo Mitsui passed on opportunities to acquire Wachovia Corp. and Washington Mutual Inc. during the financial crisis, said Minoura. Wachovia was bought by Wells Fargo & Co. for $12.7 billion in 2008 and Washington Mutual’s banking operations were sold to JPMorgan Chase & Co.
Minoura spent 18 years in the U.S. working for Sumitomo Mitsui and predecessor banks. He became chief of the company’s international operations in April.
Sumitomo Mitsui returned to profit in the fiscal year ended March 31 and forecast net income will rise 25 percent to 340 billion yen this fiscal year. That would still be less than half of what the bank earned in the 12 months through March 2006.
The company said June 30 it will pay 13.7 billion rupees ($292 million) for a 4.5 percent stake in Kotak Mahindra, owner of India’s largest securities firm. Sumitomo Mitsui invested about $180 million in Hong Kong-based Bank of East Asia Ltd. in January.
Other overseas acquisitions include the 2008 purchase of a 15 percent stake in Vietnam Export-Import Commercial Joint-Stock Bank for about $225 million and an investment in Korea’s KB Financial Group Inc. the same year.