Mitsubishi UFJ Financial's main lending unit is eyeing further acquisitions in the U.S. and Asia as part of its longstanding aspirations to become one of the world's leading commercial banks, the unit's new president said.
The U.S. banking market remains a focus because of its size and steady growth, while Asia presents opportunities because of the expanding middle class, Takashi Oyamada, president and chief executive officer of Bank of Tokyo-Mitsubishi UFJ Ltd., said in an interview at the lender's headquarters last week. Oyamada, 60, became the bank's new president on Friday.
"We'll consider any opportunities for non-organic growth" in the U.S., said Oyamada, adding that this could involve the acquisition of another "reasonably large" regional bank. California-based Union Bank, which became a wholly owned subsidiary of Bank of Tokyo-Mitsubishi UFJ in 2008, had total assets of $115.4 billion at the end of last year. The Japanese bank has a long list of potential acquisition targets among regional U.S. lenders, but isn't in any specific negotiations at the moment, he said.
MUFG, Japan's biggest bank, and competitors including Mizuho Financial Group Inc. are expanding abroad as this year's introduction of negative interest rates makes lending even less profitable in a country where the economy and population are shrinking. Bank shares are the worst performers in Japan this year. Oyamada is among executives who are predicting a tough 12 months ahead for the industry.
Given the headwinds Japanese banks face at home, MUFG is right to pursue its overseas acquisition strategy, according to Nana Otsuki, chief analyst at Monex Group Inc., a Tokyo-based online securities firm. "They have no choice but to diversify their sources of profit geographically."
Oyamada reiterated the bank's goal of becoming one of the top 10 lenders in the U.S. by deposits, moving up the rankings from its current position at number 13, according to data compiled by MUFG as of December 2014. To reach the number 10 position, the bank would need to increase its deposits by $67.3 billion to $182.3 billion, the data show. On a group basis, MUFG is the fifth-largest bank in the world by total assets, according to separate data compiled by Bloomberg.
Like other Japanese banks, BTMU has seen its already razor-thin margins on domestic lending squeezed further by the Bank of Japan's introduction of sub-zero rates in February to boost the economy. The move to charge Japanese banks for some of their excess reserves held with the BOJ has given an extra impetus to their quest for higher-yielding business overseas.
Oyamada said that while there wouldn't be any major effect from negative rates in results for the year ended March 2016, business performance in the following 12 months would be impacted "significantly." Offsetting the effects of the BOJ policy over a single fiscal year would be a "considerable challenge," he said.
One way to recoup the extra cost of holding deposits with the BOJ would be to charge customers for their deposits with the banks, but Oyamada said that BTMU is not considering such a step for either its retail or corporate customers.
It would be "extremely difficult" to charge retail customers for holding accounts, said Oyamada. "And we're not thinking about introducing any specific fees for corporate customers in response to negative rates any time soon either," he added.
Another effect of the BOJ's surprise announcement on Jan. 29 was to push yields on Japanese government bonds with terms as long as 10 years below zero. Oyamada said he's not optimistic that JGB yields will improve in the near future, and the bank will boost its holding of overseas bonds as a result.
"We will increase the weight of foreign bonds" in the investment securities portfolio as JGB holdings mature, said Oyamada. "I can't see JGBs increasing significantly in current conditions." MUFG had 26.5 trillion yen ($238 billion) of JGBs as of end-December.
MUFG has been making progress toward achieving targets announced in November for cutting shares it holds in client firms as part of efforts to improve governance. Oyamada said that as of March 31, the bank was close to completing more than 100 billion yen of the approximately 800 billion yen it plans to sell over five years to September 2020. "We've set ourselves a target, and I intend to make sure we achieve it," he said.
Shares of MUFG rose 0.1 percent in Tokyo trading on Monday. The stock has dropped 33 percent this year, in line with the Topix Banks Index.
Oyamada didn't rule out any geographic location for a potential acquisition of a U.S. regional bank, saying another purchase on the West Coast could offer synergy benefits with Union Bank, while a purchase elsewhere in the country would improve the bank's footprint.
In an interview in 2014, then MUFG Deputy President Masaaki Tanaka, now a senior adviser, said the bank would target acquisitions in the U.S.
In Asia, BTMU acquired a majority stake in Thai lender Bank of Ayudhya in 2013 and agreed to purchase 20 percent of Security Bank in the Philippines in January. Go Watanabe, chief executive officer of BTMU's Asia-Oceania arm said in an interview in Singapore last year that — as well as in the Philippines — the lender is considering acquisitions in Indonesia and India.
Before his promotion to president last week, Oyamada was named BTMU's deputy president in June 2014 and also served as deputy president and group chief operating officer of the bank's parent MUFG since June 2015.