Trump era holds promise for financing, but varied dangers lurk
Japan’s megabanks may shift their overseas focus away from Asia and onto the U.S., where they believe that aggressive fiscal stimulus promised by the incoming Donald Trump administration will offer new business opportunities. But the prospect of protectionism could hobble their ambitions.
Mired at home under a zero-interest rate policy, Japanese banks have been forced to look abroad for growth opportunities.
“If the U.S. economy is buoyed, then our business opportunities will increase,” said Koichi Miyata, president of Sumitomo Mitsui Financial Group, who thinks the U.S. is the most promising region in 2017.
The infrastructure investment and large tax cuts touted by the Trump campaign would offer his administration a chance to boost U.S. economic growth. To tap this, Sumitomo Mitsui looks to increase lending to local and Japanese businesses as well as bolster brokerage services such as M&A advising.
Mizuho Financial Group is luring talent from Western rivals to enhance its investment banking operations and has become one of the top 10 players in U.S. corporate bond underwriting. “We are making great strides in the U.S.,” President Yasuhiro Sato said. “I would like to see this energy get only stronger.”
The three megabanks also are making acquisitions. In 2015, Mizuho bought the North American loans of Royal Bank of Scotland. Mitsubishi UFJ Financial Group is hunting for regional banks in the U.S. Sumitomo Mitsui decided in December to buy a U.S. freight car leasing operation.
“The movement of goods on a U.S. economic expansion will be a plus [for leasing],” Miyata said.
But some fear Trump’s protectionist policies could hamper the U.S. activities of Japanese companies. This risk was illustrated by Trump’s criticism of Toyota Motor’s plans to build a new plant in Mexico. Sato notes that Trump criticized Democratic rival Hillary Clinton during the election campaign for her ties to Wall Street, so “while he may ease excessive regulations, I don’t know if he’ll bridge the distance with financial institutions.”
The Japanese megabanks face other concerns with this strategy, such as the higher cost of raising dollars and mixed signals from Asia. Economic growth is slowing in China, a major destination for Asian exports, while higher U.S. interest rates have not allayed concerns about a capital outflow from the region.
“Asia is certainly a growth market — that has not changed,” Sato said, but the financial risk has increased. As of March 31, the three megabanks held $172.7 billion in financing to Asian markets outside Japan, less than the $176.5 billion to North America.