Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, raised a record $4 billion selling bonds to help fund its goal of becoming a top 10 U.S. lender.
A unit of the Tokyo-based bank cut costs in the March 4 sale, issuing five-year debt at 80 basis points over Treasuries, versus 105 for similar-maturity debt sold in September, data compiled by Bloomberg show. The spread for comparable U.S. corporates is 94, according to Bank of America Merrill Lynch data. The lender sold $7 billion of dollar bonds in the past year to fund overseas growth.
Deputy President Masaaki Tanaka, who has helped manage the lender's investments in Morgan Stanley and UnionBanCal Corp., said last month Mitsubishi UFJ will target more acquisitions in the U.S., where a consolidation of its businesses in July will create the nation's No. 12 lender. Large Japanese banks boosted overseas loans by 23 percent in the past year as a shrinking population and benchmark interest rates near zero cut profitability on domestic lending to the least in Asia.
"Mitsubishi UFJ will continue to seek to increase lending overseas where greater demand is expected," said Ryoji Yoshizawa, a Tokyo-based director of financial institution ratings at Standard & Poor's. "Japanese banks are trying to secure foreign-currency funds from the bond market, rather than completely relying on their non-yen deposits."
U.S. Investments
Mitsubishi UFJ invested $9 billion in Morgan Stanley in 2008 during the global financial crisis, and spent about $3.5 billion to make San Francisco-based UnionBanCal a wholly owned subsidiary, to strengthen its foothold in the world's largest economy. It now owns 22 percent of Morgan Stanley.
The Japanese bank will integrate the operations of its U.S. unit and UnionBanCal under a holding company on July 1, it said last month. Doing so will let Mitsubishi UFJ lend out UnionBanCal deposits, something it couldn't do before the merger, according to the Japanese firm.
The consolidation will boost Mitsubishi UFJ's U.S. deposits to $96 billion, putting it just behind BB&T Corp., the 10th biggest U.S. lender, and SunTrust Banks Inc., the No. 11 bank, according to presentation material posted on its website. Mitsubishi UFJ aims to be in the top 10, based on criteria including deposits, loans and profit, by 2016.
Bank of Tokyo-Mitsubishi UFJ Ltd.'s $4 billion dollar-bond issuance compared with $3 billion in debt offered in September and the $2.3 billion of notes sold in February last year, according to the lender. The bank issued 30-year U.S.-currency bonds for the first time this month, said Kazunobu Takahara, a Tokyo-based spokesman for Mitsubishi UFJ.
SMBC Sale
Sumitomo Mitsui Banking Corp., the lending arm of Japan's second biggest bank, offered $3 billion of dollar-denominated bonds in January, according to data compiled by Bloomberg.
"Base interest rates are very low and spreads are very tight globally," said Takayuki Atake, the Tokyo-based head of credit research at SMBC Nikko Securities Inc. "The market is pretty favorable for bond issuers."
The extra yield on U.S. corporate notes of all maturities over Treasuries fell to 121 basis points on March 6, the least since July 2007, according to Bank of America Merrill Lynch data. The spread for companies worldwide touched 118 basis points, or 1.18 percentage points, also more than a six-year low on March 11, the data show.
Unprecedented central bank stimulus in Japan to overcome deflation has reduced banks' profits on loans. BOJ bond purchases have helped drag down the nation's benchmark 10-year yield to 0.64 percent, the lowest in the world, while the yen rose 0.1 percent to 102.67 per dollar at 10:49 a.m. in Tokyo, after weakening 18 percent last year.
Domestic Economy
Lenders including Mitsubishi UFJ face domestic challenges as the economy's recovery stalls. Gross domestic product grew less than forecast in the fourth quarter before a sales-tax increase in April that's expected to weigh on consumer spending. The Topix share index has fallen about 7 percent this year, after jumping 51 percent in 2013.
The cost to insure Bank of Tokyo-Mitsubishi's debt against non-payment has climbed eight basis points to 64 this year, while JPMorgan Chase & Co.'s credit-default swaps fell four to 63 during the period, according to data provider CMA's prices.
Japanese lenders have an average net interest margin of 1.28 percent, the lowest among Asia-Pacific banks, according to data compiled by Bloomberg. Mitsubishi UFJ's was 0.93 percent, the data show.
That's pushed lenders to look abroad for growth.
Overseas Loans
Outstanding loans at the overseas branches of major Japanese banks rose 23 percent to 48.5 trillion yen ($472 billion) in January from a year earlier, according to BOJ data.
Lending outside of Japan at Mitsubishi UFJ totaled 32.5 trillion yen at the end of December, up from 20.6 trillion yen in September 2012, the bank's data show.
Asia is another target for the lenders' expansion overseas.
Mitsubishi UFJ completed in December the purchase of a $5 billion stake in Thailand's Bank of Ayudhya Pcl, while Sumitomo Mitsui agreed to buy 40 percent of Indonesia's PT Bank Tabungan Pensiunan Nasional for about $1.5 billion in May.
Mitsubishi UFJ would "seriously consider" acquisitions in Indonesia and the Philippines to expand its overseas business, Deputy President Tanaka, who joined Morgan Stanley's board in 2011 and used to be the chief executive officer of UnionBanCal, said in an interview last month, without elaborating.
"Asia is a promising market where you can expect long-term growth," said Shinichi Ina, an analyst at UBS AG in Tokyo. "There's room for Japanese banks to show strength in nearby markets. There still may be a chance for Japanese lenders to buy banks in the region for a good price."
