It's ironic that one of the first big Japan stories to run in the Financial Times after its $1.3 billion purchase by Nikkei Inc. was a scoop about Mitsubishi UFJ, the country's biggest bank, and its overseas ambitions. In an interview, chief executive officer Nobuyuki Hirano revealed plans to spend at least $2.5 billion in the U.S. alone to beef up the bank's asset-management business. As the FT reported, that puts Bill Gross's Janus Capital, AllianceBernstein, Evercore and WisdomTree within his price range. And Hirano says he'll spend more for the right opportunity.
This is good news for Japan -- a headline-grabbing admission from one of the country's most respected companies that future prosperity will require tapping wealth abroad and de-emphasizing a rapidly aging consumer base at home. It will also be a test of whether Japan Inc.'s cautious, top-down management style can coexist with faster-paced, more profit-driven Western investment houses. Will buyouts produce internal clashes instead of hoped-for synergies?
The record isn't promising. Fellow megabank Nomura is still picking up the pieces from its disastrous 2008 purchase of Lehman's Asia and Europe operations. At the time, the deal was seen as a coup, vaulting Nomura to the top tier of global investment powers. But the bank's rigid management structure could not accommodate the freewheeling "Lehmanites." Internal tensions quickly doomed any chance Nomura and Lehman might morph into something greater than the sum of their individual parts.
Mitsubishi UFJ has generally fared better with its own external forays. A Morgan Stanley stake (about 22 percent) bought in 2008 has buttressed the bank's global clout. So has the 2013 decision to buy Thailand's Bank of Ayudhya, the largest banking takeover the Southeast Asian nation had ever seen. Mitsubishi UFJ now gets a sizable, and growing, amount of its profit from overseas businesses.
Nomura wrongly thought it could indoctrinate Lehman employees into a staid culture almost 90 years in the making. By contrast, Mitsubishi UFJ let the Morgan Stanley crowd do its thing, even dispatching staff to learn from the newcomers. Ventures haven't been without tensions, but the home office has savvily won mergers and acquisitions deals (including the Thai bank acquisition) by harnessing Morgan Stanley's advisory clout to Mitsubishi UFJ's financing strength. Such open-mindedness and flexibility is crucial if this next wave of acquisitions is going to enhance Japan Inc.'s global standing. Why buy a foreign company like Gross's Janus if management thinks it has nothing to learn?
Hirano isn't alone in his overseas ambitions. Japan's nine major financial institutions loaned over $490 billion through overseas branches last fiscal year, double the amount five years ago, says analyst Francis Chan of Bloomberg Industries. The search for higher yields is pushing megabanks such as Sumitomo Mitsui and Mizuho to expand foreign client bases through loan transactions with global peers. Mizuho, Japan's third-biggest bank by market value, made headlines this year when it bought $3.5 billion of North American loans from Royal Bank of Scotland.
These investments bear little resemblance to the high-profile overseas buyouts Japanese businesses embraced in the 1980s. Back then, bankers and investors cared more about physical assets -- golf courses, skyscrapers, amusement parks, any Van Gogh or Picasso on auction. Now, with wages barely growing at home and more than 26 percent of Japan's 127 million people becoming senior citizens, bankers are looking for clients, not trophies. It's healthy to see today's megabanks "measure the success of overseas acquisitions by the ratio of non-Japanese customers acquired," Chan says.
Importantly, though, they're also looking to buy expertise. After 20 years of obsessive cost-cutting, Japanese banks boast higher levels of efficiency, lower costs and overseas strategies with longer-term profit horizons. But, says economist Martin Schulz of Fujitsu Research Institute in Tokyo, "I doubt that low costs and determination will be enough. A low-cost strategy requires tremendous applied management skills. So, what's lacking is global management expertise, which can only be bought effectively when it can readily be integrated into existing structures."
Nikkei's FT purchase is part of this story. While it may seem a petty point, for instance, Nomura CEO Kenichi Watanabe's poor English skills alienated him from Lehman employees (he was forced out in 2012). Many pundits were struck, too, by the confused looks on the faces of Nikkei executives last week when they faced questions by non-Japanese journalists. However familiar these lost-in-translation moments may be, Japan Inc. has got to find a way to move beyond them if its overseas push is to succeed.
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