The Japanese art of denial is even more multi-layered and delicately nuanced than the art of apology. Often, “yes” can mean “no” and vice versa, as Alyssa on Tokyomango points out on YouTube.
That is why the rather limp denials by Sumitomo Mitsui Financial Group on Wednesday of local media reports that Japan’s second-largest bank is planning to “do a Buffett” and buy into Goldman Sachs has not deterred speculation – one iota.
In fact, investors seem to have decided there’s substance to the rumour, sending SMFG’s share price up 1.2 per cent in Tokyo on Wednesday to Y684,000. They also signalled their approval of this week’s top Japanese shoppers: Nomura, whose share price leapt 5.2 per cent to Y1,505, after gaining 9.6 per cent on Friday and another 9.6 per cent on Monday on news it was acquiring some of Lehman’s operations in Asia, Europe and the Middle East; and MUFG, which announced late Monday it would buy 10-20 per cent of Morgan Stanley for as much as $8.5bn, and saw its shares rise 4.2 per cent on Wednesday to Y936.
While Kyodo news agency ran the first report of SMFG’s alleged interest in Goldman, a second report, this time in the influential Nikkei Business Daily, gave the rumour far more weight. Kyodo said SMFG was planning to invest several billion dollars in Goldman, while Nikkei said the amount under consideration was Y100bn ($946m).
As Forbes.com points out, when Goldman announced Tuesday night that Warren Buffett’s Berkshire Hathaway was buying $5bn worth of preferred shares in Goldman, it also said it plans to sell at least $2.5bn shares of common stock, and “it could be that Sumitomo Mitsui is considering taking a piece of that issuance”.
Either way, it has indeed been a high-profile week for Japan’s previously subdued banks. “Japanese banks roaring up Wall Street” (Wall Street Journal) – or better still, “Back from the Dead, Tokyo banks buy up Wall Street” (Reuters) are headlines that seems to sum up international reactions to the sudden sign of acquisitive life from Tokyo.
“For the first time since the early 1990s, Japanese investors are making big, risky bets in the US. Instead of snapping up trophy assets like Pebble Beach and Rockefeller Center, however, the Japanese are helping to recapitalize the US financial system”, gushed the Journal.
While some Japanese banks have made some modest overseas investments so far this year – SMFG itself said in June it would pay £500m ($927m) for a 2 per cent stake in Barclays - what exactly is driving the new-found shopping frenzy?
For starters, Japanese banks are sitting on piles of cash – well, “piles” compared to their battered and beaten US counterparts. Japanese banks accounted for less than 3 per cent of global credit-market losses in the past year, according to Bloomberg.
And, as one analyst observed, it’s a time when any self-respecting bank with any cash feels pressured to at least look at buying a US investment bank or financial institution.
“After years of caution spent weathering the economic woes at home, Japan’s banks are looking for growth,” adds the Journal. Japan remains the world’s second-largest economy as measured by gross domestic output, but with its graying population, it is a growth laggard.
In other words, their customer base is dying off and in order to shore up their future, the banks have to look abroad. And now is the time to do it on the cheap.
Putting it more bluntly, Lex says: “In a nutshell, Japanese banks have cash and their US peers need it”:
Japanese banks’ swollen balance sheets have become an embarrassment at best and at worst a temptation to dally in unsuitable investments. This explains why the list of the biggest creditors to Lehman Brothers was dominated by Japanese names, and why the country’s banks are Asia’s biggest casualties in the subprime fall-out.
One certainty is that this Japan-driven spate of deals and rumours neatly illustrates the reversal of fortunes between the financial sectors in Japan and the US, as the Journal concludes. A decade ago, Japanese banks were damaged from their own bad-loan problems, requiring the government to spend nearly $440bn to strengthen them. Many financial companies have consolidated and restructured since then, and have regained their health recently – and appetite for overseas expansion.
As Reuters puts it: “Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms have largely avoided the huge credit losses of the subprime mortgage crisis, leaving them well-placed to pick up the best assets from the carnage on Wall Street.”
As for SMFG, regardless of its denials, it would “make absolute sense for them to do it [buy into Goldman] and I’d be very surprised if they didn’t”, said one Tokyo-based analyst, referring to the historical ties between SMFG and Goldman.
There is indeed a beautiful – and ironic – symmetry to the relationship.
In 2003, Goldman came to SMFG’s aid, buying Y150bn worth of the then-ailing bank’s convertible preferred shares, giving it a much-needed capital injection – while in 1986, Sumitomo Bank - SMFG’s predecessor bank - helped bail out Goldman, “then a small and capital-poor Wall Street partnership firm”, noted Lex at the time, by taking a 12 per cent stake for $500,000.
This time around - profit considerations aside, and returning to the point about traditional Japanese values (this time of honour and obligation) - it’s SMFG’s turn to do Goldman a favour.
