MUFG's Trust Bank to Boost Assets Administered Overseas 30%

  • Japanese lender seeks to expand fee business for stable income
  • New Dubai office will target sovereign wealth fund market

Mitsubishi UFJ Financial Group Inc.’s trust banking arm plans to increase the assets it administers overseas for institutional investors by about 30 percent to $400 billion over the next two years to boost fee income, the unit’s new president said.

The trust bank, which has acquired four firms that provide services to funds over the past three years, will seek more takeovers to achieve the goal, Mikio Ikegaya said in an interview in Tokyo last week. “We can expect to earn stable fee income from this business,” said Ikegaya, 57, who became president of Mitsubishi UFJ Trust & Banking on Friday.

Japan’s biggest lenders are expanding abroad and increasing their focus on fee businesses at a time when a slowing economy and the central bank’s introduction of negative interest rates are disrupting markets and further eroding loan profitability at home. Mitsubishi UFJ Trust and its major trust bank peers last week were the first lenders to say they would begin passing on some costs of the Bank of Japan’s policy to some institutional customers.

Ikegaya said negative rates had “paralyzed” the overnight call markets where surplus funds from investment trusts and annuities not committed to stocks or bonds would normally be invested in the short term. He said the amounts now needing to be held by the bank -- some of which end up attracting negative rates at the BOJ -- had jumped considerably.

Customer Reaction

But Ikegaya said he doesn’t expect clients to be upset about having to pay fees on the amounts in their trust accounts that are subject to the negative rate. 

“Our investment and annuity customers are professionals; almost all of them understand,” he said.

Ikegaya said the bank’s product suite “isn’t perfect yet,” noting that adding companies with strengths in managing public investment trusts would complement the hedge-fund and private-equity service providers it has purchased to date. It bought an alternative fund services business from UBS Group AG in December.

“We’ll take a proactive approach to acquisitions if there are opportunities,” Ikegaya said.

The trust bank also is planning to open an office in Dubai in May to tap demand from sovereign wealth funds in the Middle East for Japanese shares and real estate as Prime Minister Shinzo Abe tries to revive the economy, according to Ikegaya. 

“Interest in investing in Japan has increased considerably since Abenomics began,” he said.

Shares of MUFG and the benchmark Topix index were up less than 1 percent as of 10:56 a.m. Wednesday. The stock has dropped 36 percent this year.

Profit Impact

Ikegaya added to voices in the banking industry expressing concern that declining interest rates will hurt earnings this year.

“There is a significant negative impact on the banking industry from the tightening of spreads,” he said. “We still need to study the details a little more, but the profit environment is going to be tough.”

Ikegaya joined the former Mitsubishi Trust & Banking in 1981 after graduating from Keio University. He became an executive officer in 2008 and had been senior managing executive officer since June 2015 before his promotion to president last week.

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