Japanese banks, which have recently observed some of the constraints on simultaneously providing banking and broking services revoked in their domestic market, have been swift to capitalise the opportunities offered by the global financial crisis to boost their investment banking skills.

 

Mitsubishi UFJ Financial Group, a major holder of Bank of Tokyo Mitsubishi UFJ, spent $9 billion to acquire 20% stake in Morgan Stanley; on the other hand, Nomura got the Asian, Middle Eastern and European operations of Lehman Brothers. Sumitomo Mitsui Financial Group acquired Nikko Cordial, Japan‘s third- largest broker, and some assets from the troubled Citigroup for $5.4 billion. Several other Japanese banks are keen to form strategic alliances or invest in troubled overseas financial institutions. Mizuho is the latest Japanese bank to announce a massive capital-raising exercise to the tune of $8 billion.

 

According to Katsunori Nagayasu, Chairman, Japanese Bankers Association and President, Bank of Tokyo Mitsubishi UFJ, the Japanese banking crisis – referred to as “Nikkei Bubble” – shows that there are three essential steps to revival: an exact evaluation of assets of financial institutions, separation of the good assets and from the toxic ones and re-capitalisation of the good banks.

 

While these measures are being carried out in other major economies also, Japan‘s experience suggests that it is very difficult to come out of such crises immediately because of the complexity of pricing toxic assets – as quoted in ft.com.

 

Mr. Nagayasu said: “to play a significant role in world [financial markets] you need a fairly high level of universal banking [capabilities]. Unless you have both commercial . . . and investment banking operations, you can’t compete in big deals.”  

 

In the world of investment banking, I have felt very strongly that Japanese banks are extremely weak in the area of advanced [financial] technology as well as in terms of their customer base. That is why we are pushing alliances as it is difficult to do it on our own,” he added.