While Europe grapples with internal politics, regulatory rows and sovereign debt problems, Japanese banks are quietly continuing their fund-raising frenzy.
According to figures compiled for FT Alphaville by data provider Dealogic, Japanese banks raised a whopping Y3,530bn, or just under $38bn worth, of funds via 12 equity issues in 2009.
And in the year to date, that figure has already reached Y1,077bn, (about $12bn) through just four issues. That compares with a relatively paltry Y546bn ($5.7bn) in three capital raisings for the whole of 2008.
Debt markets are also seeing a steady stream of bond issues by Japanese banks, notching up Y1,883bn, or $20.6bn, via 61 debt capital raisings for the year to date – a figure which could see debt issues outstrip last year’s total of Y5,824bn ($62.8bn).
_________________________
And Japan banks come to China
And in a first for any foreign bank, MUFG, Japan’s biggest bank, this week announced the first-ever renminbi bond issue by a foreign bank, an issue of Rmb 1bn ($146m) of bonds in mainland China due on Thursday. As Lex said on Wednesday, the move could herald a welcome new source of funding for Japanese banks, even though (this is China, remember) the proceeds must stay within the country.
As unusual as it is, though, $146m is peanuts for cash-hungry banks, and the main game is clearly in equity capital raisings. Explanations behind the series of monster raisings that Japan’s banks kicked off last year include the drive to shore up their capital bases; expand operations (at home and/or abroad); off-set falling core earnings; and buy back preferred shares and bonds.
_________________________
The fear behind the frenzy
But one sign that there could be more desperation behind the massive fund-raisings than the banks care to acknowledge is the increasing concern among investors and analysts about the ability of Japan’s markets to digest the volume of new shares being issued.
The bottom line behind the multi-billion dollar equity capital raisings, however, is the very real fear among Japanese banks that they will struggle to meet new capital adequacy ratios due from the BIS’s Basel committee at the end of the year.
And there are mutterings among banking sources that regulators at Japan’s FSA watchdog have sent some discreet signals that raising funds now, rather than all in a hugely dilutory rush at the end of the year, might be a Very Good Idea.
As FT Alphaville noted in December, the new Basel proposals for the banking sector did not go down well.
_________________________
The shadow of Basel
In Japan, that’s an understatement. Japanese banks and regulators are well aware that Japan’s institutions are likely to be at a disadvantage in the prescribed shift from Tier I to Core Tier I capital. For one thing, they are heavily invested in securities portfolios and have operated under rules enabling them to include a variety of assets in their Tier 1 capital. They would also be hard hit by a proposal to ban the counting of historic losses – so-called deferred tax assets – as capital.
Little wonder, then, that the new chief of Japan’s Bankers’ Association – the main industry body – lashed out at the forthcoming capital rules. In unusually stark comments for a Japanese executive, Masayuki Oku, the president of SMBC who was appointed association chief in April, told the FT that the international move to strengthen capital and liquidity requirements was “one-sided” and “rash”. Japanese banks, he added, “to be honest, are very unhappy with the big rule change”.
MUFG last year raised more than Y1,000bn in a new share issue, enabling it to raise its core tier one capital adequacy ratio to 8.28 per cent, compared with 5.77 per cent at end-March 2009.
Its rival SMFG, Japan’s second largest bank, in January announced it would raise another Y889bn ($9.6bn) via a share sale, after raising Y860bn last June; and last week Mizuho, the weakest of the big four banks, announced it was aiming to raise up to Y800bn in new capital.
For Mizuho, at least, even that is not enough, according to analysts who say the bank needs to raise about Y2,000bn to bring its capital base to the level of its stronger competitors.
As Keisuke Moriyama, credit analyst at Nomura, told the FT, the bank’s core tier one ratio was substantially below the 5-6 per cent of MUFJ and SMFG, and would not reach that level with an additional Y800bn in capital, he said.
The news from MUFG, however, could augur well, for rivals as well as for Japan’s number one lender. Highlighting the recovery in Japan’s banking sector, MUFG onTuesday reported a return to profit last year amid improved market conditions, saying net profit was Y388.7bn in the year to March against a loss of Y256.9bn the year before.
Significantly, the bank cited last year’s recovery in equity markets, primarily Japanese, as the main reason that the previous year’s Y408.7bn net losses on equity securities became a Y32.4bn net gain.
However, with its relatively conservative forecast of Y400bn ($4.3bn) in net profit for the current year, MUFG signalled concern – echoed in other financial circles – that the pace of Japan’s economic recovery will be slow.
But on a downbeat note, Lex notes that the trends from this year’s Japanese bank results season “are obvious: falling core earnings thanks to slowing loan growth, a further narrowing of loan spreads and continued weak fees and commissions”.
Nothing, then, that an orgy of bank fund-raising can’t fix, right….?
Related links:
Banking and broking JVs: how not to do it – FT Alphaville
Bank capital rules face overhaul – FT
Strengthening the resilience of the banking sector – BIS
International framework for liquidity risk measurement, standards and monitoring – BIS