Japan weekly review, 12th-18th July, 2021

Here is a brief and selective review of the past week’s news relating to Japanese business, finance, investment, the economy and other areas relevant to Crimson Phoenix’s activities.

SMFG’s overseas expansion continues

Not long after the ink had time to dry on its agreement to acquire a controlling stake in Fullerton India did Sumitomo Mitsui Financial Group sign another deal, this time to invest up to 4.9% into the equity of the US investment bank Jefferies Financial Group Inc. for US$386 million.

The deal is designed to give the second largest Japanese megabank by assets exposure to the booming US equities and leveraged financing markets as well as better access to cross-border M&A advisory business involving Japanese clients and deals in the healthcare sector in the US. One of SMFG’s predecessor banks, Sumitomo, invested US$500 million in Goldman Sachs in 1986 as the latter’s first outside capital provider, long before its IPO in 1999. Goldman Sachs later reciprocated by investing US$1.27 billion in SMFG in 2003, although the capital ties have since been severed.

SMFG also announced agreements in recent months to invest in FE Credit in Vietnam and Rizal Commercial Banking Corporation in the Philippines. In Europe, it bought RBS’s aviation finance business in 2012. Further back in history it injected ￡500 million into Barclays plc as the British bank sought to shore up its balance sheet.

Japanese financial institutions have had a chequered history of overseas acquisitions. Nomura’s high-profile purchase of Lehman Brothers’ European and Asian businesses after its collapse has generally been regarded as less than successful. In contrast, Mitsubishi UFJ Financial Group’s investment in Morgan Stanley and establishment of joint venture Mitsubishi UFJ Morgan Stanley Securities in Japan has been credited with cementing MUFG’s position in Japan’s financial services industry. Mizuho has hardly made any significant investments abroad, choosing instead to grow organically.

The latest deal by SMFG follows a now familiar pattern of Japanese banks seeking non-organic growth opportunities in markets abroad. What smaller banks and brokers will do to ensure their survival when the domestic market continues to age and shrink is one of the more interesting questions.?

As does Toyota’s

Toyota has, through its Woven Planet Holdings subsidiary, announced a deal to acquire Carmera, a high-definition mapping start-up, just a few months after announcing the purchase of Lyft’s autonomous driving unit. The deal solidifies Toyota’s position as one of the leading automotive groups in the world to invest in autonomous driving technology.

This leaves its domestic rivals, including Nissan, lagging even further in cutting-edge R&D in this area. It would therefore be interesting to observe what those other companies would do next. Nissan, which is reeling from management upheavals instigated by the arrest, incarceration and subsequent escape from Japan of its former Chairman Carlos Ghosn, is of particular interest in this respect. It may decide that a dramatic move, a substantial acquisition for example, is the only way to regain some lost ground.

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