Japanese lenders struggling to survive in international markets

Bloomberg

Time and again since Japan emerged as a global economic force, its financial leaders have hatched plans to translate their influence into investment-banking clout. Time and again, they’ve failed.
The retreat sounded by Nomura Holdings Inc. last month marks just the latest Japanese overseas flop, prompting current and former executives, as well as analysts, to question if they can ever make it in international capital markets.
“Japan is a manufacturing powerhouse but a financial lightweight,” says David Threadgold, a Keefe, Bru-yette & Woods analyst in Tokyo who has followed banks there for more than three decades.
Their weakness overseas is an urgent handicap for Japan’s biggest banks, which are facing tough times at home. Results last week highlighted the effect of a weakening economy and rising trade tensions, with Sumitomo Mitsui Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. all posting net income projections that missed analysts’ estimates. Those, combined with entrenched rock-bottom interest rates, point to cost-cutting as a top priority—especially abroad.
But since Nomura brou-ght in top bond traders to sell US Treasuries to domestic investors in the early 1980s, Japanese banks have stumbled on practices that work at home but
not so much on Wall Street and Canary Wharf: excessive risk aversion, centralised control that values process over profit and, most critically, personnel policy that rotates senior executives every few years.
“Decision-making in every Japanese company is consensus-based, process-heavy and very slow,” says Threadgold. “It’s easier to get cultural buy-in for that style from auto workers
in Tennessee but very difficult to do so from investment bankers in Manhattan or London.”
The latest faux-pas are especially stark because Japanese banks had the chance to hit their US and European rivals when they were bloodied from the financial crash of 2008. The story is best seen in the diverging strategies and outcomes at Nomura, the largest secutiries firm, and the No. 1 bank, MUFG. With this month’s 15 percent plunge, Nomura’s shares have lost 81 percent since the start of 2008; MUFG has lost 52 percent. Both lagged the benchmark Topix Index. MUFG put $9 billion into Morgan Stanley at the height of the 2008 crisis and is now the biggest shareholder of the US investment bank, cashing in the dividends from the much more profitable business.
In contrast, Nomura bought the European and Asian businesses from bankrupt Lehman Brothers. The combined capital markets revenue of the acquired business and Nomura was $12 billion in 2007. Today’s it’s around $5 billion. With too many employees and too few clients, the Japanese firm is again on the defensive: it’s slicing $1 billion of costs and eliminating about 150 jobs across the Americas and Europe, the Middle East and Africa on top of reductions in Hong Kong and Singapore. It was the fourth time in four decades: Nomura had attempted global prominence in the 1980s, 1990s and 2000s.
Despite failing to capture revenue from the Lehman business, Nomura’s headcount still reflects the bump caused by the arrival of 8,000 Lehman folks and more. The firm’s 2018 revenue was almost the same as it was in 2007, yet Nomura employs 10,000 more people now than it did then.