Mitsubishi UFJ Financial Group plans to accelerate lending to global funds and other institutional investors in the U.S., as it moves to overtake Goldman Sachs Group this year in loans syndicated in the world's biggest economy.
Japan's biggest lender is looking to add new exposure to loans for these clients, that are backed by property portfolios, Fumitaka Nakahama, MUFG's head of global corporate and investment banking, said in an interview.
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"We need to watch the market carefully but we are discussing to increase our risk appetite," Nakahama said. "We are trying to secure profits with traditional lending in this phase of interest rate hikes."
Nakahama, 56, who took over in April from Masato Miyachi, is seeing an uptick in demand for loans to corporates in the U.S. This year, the lender is on track to rank sixth overall for U.S. loans, up two places from 2021, and ahead of Goldman and Barclays, according to data compiled by Bloomberg. Japan's lenders have been expanding into the U.S. amid ultralow interest rates and tepid loan demand at home.
In a bid to win more business with institutional clients such as pension funds, private equity firms and asset managers, the bank is planning to hire about 10 coverage bankers and portfolio managers in the U.S., Nakahama said. The lender is also considering hiring about five managing director- and director-level bankers in Asia and about 10 in Europe to win business with such clients, though the timing will depend on the progress of growth plans and market conditions, he said.
MUFG joins smaller rival Mizuho Financial Group in redoubling efforts to target revenues in the U.S. Mizuho wants to hire bankers to build its businesses with non-investment-grade companies and leveraged buyout financing, where returns are expected to be higher, Masahiro Kihara, CEO of Japan's third-largest bank, said in an interview in April.
"There's growing need for loans," said MUFG's Nakahama, adding that a downturn in capital markets is driving up demand for lending by banks. "In the current environment, bond issuance is getting difficult."
Brisk business
The bank is currently enjoying brisk business in project finance, led by infrastructure and energy projects, and supply chain finance in the U.S., he said. Aircraft finance, which was hit by a sharp drop in travel during the pandemic, has also been recovering, he added.
MUFG, which has traditionally catered to manufacturers and merchants, is building up its institutional investor business, one of the bank's key growth initiatives under a three-year plan that started in April last year. The bank counts the likes of BlackRock, KKR and Carlyle Group among its institutional clients.
Still, the expansion comes as Japanese banks' success in taking on Wall Street to offer loans in the U.S. is drawing regulatory attention. Rapid rate hikes by the Federal Reserve are now making dollar funding a critical issue for the lenders, putting them at a disadvantage to U.S. rivals, a senior official at Japan's financial regulator
In response, MUFG is seeking to originate and then sell debt to third parties to tie up less of its balance sheet. Helping money managers to package and sell collateralized loan obligations — by extending finance over relatively short durations — is important and an area where the bank is expanding, albeit cautiously, Nakahama said.
He sees growth potential in providing funding to CLO managers for loans to riskier small and medium-sized businesses — known as middle-market loans — which offer a higher yield than more common broadly syndicated loans.
Nakahama is also seeking to expand in non-investment- grade lending, where returns are higher and risks bigger.
"Conditions are very tough now," he said referring to that market. "They could last through the next year, but in the long term, we won't stop our progress."
— With assistance from Sanjit Das.
