Banking on a new challenge in Australia

International operations by Japanese banks have traditionally focused on New York and London in the West and Hong Kong and Singapore in the East. But on August 27, one of Japan's mega-banks, Bank of Tokyo-Mitsubishi UFJ swung the financial spotlight down under by buying $A200 million worth of shares in one of Australia's top investment banks in conjunction with Mitsubishi UFJ Securities.

Before this year's dramatic purchase, The Bank of Tokyo-Mitsubishi UFJ Ltd had a long - albeit interrupted - history in Australia. Its first operations date back to 1915, when the then-Yokohama Specie Bank was established to finance Australia's wool export trade with Japan.

For 40 years following World War II, Australia's finance and banking markets were closed to foreign banks. But in 1985, The Bank of Tokyo and Mitsubishi Bank won government approval to operate in Australia. A decade on, these two banks merged to become The Bank of Tokyo-Mitsubishi.

In order to increase the lending volume by strengthening the capital base, the bank, which until then had a "local subsidiary status" in Australia, re-established itself as a Sydney branch in 2003. A further merger finally led to the establishment of The Bank of Tokyo-Mitsubishi UFJ Ltd Sydney branch in 2006. The bank also has branches in Melbourne and Auckland, New Zealand. The Bank of Tokyo-Mitsubishi UFJ Ltd ranks as the largest among Japan's three mega-banks, holding 996.9 billion yen (A$9.97 billion) in capital stock. In Australia, it operates as a commercial bank specialising in business lending, project finance and foreign exchange services. The current lending balance for Australian branches is about A$5 billion and they employ more than 120 people.
The bank is at the top of the game across foreign banks operating in Australia. Lending to Australian businesses has been on a steady rise, accounting for nearly twice the amount of loans to Japanese businesses operating in Australia. The market for acquisitions through leverage-buyouts (LBO) and management-buyouts (MBO) has also been strong.

Although the bank has heavily increased its lending by expanding its customer base in Australia, more recently it has moved into investment banking operations so that the bank can offer various products and services to its customers. This involves syndicated loans, securitisation and structured financing for infrastructure and real estate assets.
It was with this background of Australian investment and experience that Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Securities bought a 20 billion yen (A$208 million) stake in Challenger Financial Service Group Ltd. Challenger is Australia's third-largest investment bank, specialising in asset management, funds management and mortgage business.

The move is an attempt to combine the investment banking know-how that Australian banks are renowned for with the widespread customer base that Bank of Tokyo-Mitsubishi UFJ enjoys in the Asian region.

After Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Securities' purchase of 40 million new Challenger shares, Reuters reported the share value jumping as much as 8.8 per cent to A$5.44 - well outpacing the day's 1.7 per cent rise in the benchmark S&P/ASX 200 Index.

With this cordial response from the Australian share market, The Bank of Tokyo-Mitsubishi UFJ hopes to expand its investment banking operations and further develop innovative financial services for its customers.

Reuters
http://www.reuters.com/article/bankingfinancial-SP/idUSSYD22533820070827

 

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Who's the boss? Interview: Kohei Tsushima Regional head for Australia & New Zealand and general manager for the Sydney branch The Bank of Tokyo-Mitsubishi UFJ, Ltd Mr Kohei Tsushima started at The Bank of Tokyo upon graduating from Hitotsubashi University in 1979. Completing his MBA in 1984 at University of California Berkeley Business School, he has worked in the capital markets division, New York branch among others. He has also worked in The World Bank as a secondment. He became The Bank of Tokyo-Mitsubishi UFJ's regional head for Australia & New Zealand and general manager for the Sydney branch in 2005. He aspires to obtain his pilot's licence in the future.

Please describe the Australian financial market and economy as they affect banks and financial services.

Mr Tsushima: We see Australia's financial markets as being world-leading and highly developed, with many business opportunities. The Australian economy is predominantly a primary resource-based economy but financial markets are just as important for its vibrancy - making up about 8 per cent of the national GDP. This is actually about the same amount as the mining and energy industry contributes to the national output. The market for real estate investment trusts is highly mature and is currently the second largest in the world. Furthermore, the onset of compulsory employee superannuation contributions in Australia led to the stimulation of asset markets of all sorts. The outstanding balance of superannuation funds is close to A$1 trillion. These factors make Australia an attractive financial market for banks and financial service providers.

What does Australia's financial market mean to Japanese banks and businesses and vice versa?

As institutions of the leading economies of the world, I believe Australian and Japanese financial institutions can help the development of the Asian region by compensating for the others' weaknesses. For Australian financial institutions, our widespread Asian clientele base is attractive because most Australian businesses tend to be inward-looking. Contrary to Japanese businesses which often expand their operations into Asian markets, Australian businesses tend to take root in their own domestic markets. The Bank of Tokyo-Mitsubishi UFJ holds the biggest clientele numbers with branches in virtually all Asian countries. For these reasons, Australian institutions look to our know-how and customer base while we hope to gain from the strength of Australian financial products in order to contribute to the region's growth and the expansion of our operations.

What are the aims of building a business alliance with Australia's Challenger Financial Services?

Although The Bank of Tokyo-Mitsubishi UFJ's traditional strategy has been to focus on expanding our clientele base by providing business lending, we are going into new business territory by moving into infrastructure asset management and mortgage business by working with Challenger Financial Services.

The business model for infrastructure asset management is characterised by the acquisition of infrastructure businesses such as roads, airports and power plants, improving its asset value by working on efficiency and productivity, then selling out its shares to investors and superannuation funds.

Challenger Financial Services has recently been recognised for its operations in the UK through the acquisition of water company Southern Water Capital, gas company British Gas and electricity company Electric City Utility, demonstrating their ability to increase revenue flows.

Australia is one of the leading countries in terms of privatising previously public-owned enterprises. Be it roads, airports, mining ports or seaports, the Australian government has actively sold off many of its assets to the public over the years. This led to an increase in competition within the infrastructure businesses. As a result, Australia saw the development of infrastructure management know-how and the attraction of highly skilled people to the infrastructure funds market.

Currently, regional governments of many western countries as well as Japan are in financial difficulties. We expect this to lead to the privatisation of many assets owned by the state. Building an alliance with an Australian investment bank that is highly attuned to these trends has strong consequences for the future of our operations. We hope to learn and assist each other in improving financial services available to our clients.