The CEOs speak out: Mitsubishi UFJ Financial Group

Mr Kuroyanagi was nearing the end of his stint at the helm of Japan’s largest financial group when he spoke to Euromoney in mid February; he steps down from direct managerial involvement in the commercial bank unit on April 1 but will remain president of the group’s holding company. In this interview with Lawrence White, he and Yasumasa Gomi, head of the group’s investment banking arm, discuss MUFG’s recent past, ambitions in Asia and plans to change its entire corporate culture.  

In a 2006 article in a US paper the interviewer quotes you as saying you thought Mitsubishi UFJ Financial Group could one day rival Citigroup in size. Is that an ambition you stand by? How close are you to achieving it?

I don’t recall making exactly that comment, but it would have been just after the establishment of MUFG when we decided we wanted to be one of the top five global financial institutions. We’re now working hard to achieve that—indeed we were at one point among the top five by market value, but are now around number 10. We’ve closed the gap in size between ourselves and Citi from 15 trillion Yen to around 3 trillion.

Despite some tough market conditions both in Japan and globally, it would seem that now is a time when the megabanks ought to be expanding and looking to raise profitability. What’s the plan for MUFG?

To achieve our goals the most important thing is to leverage our strengths as a top Japanese financial institution. This country is seeing a shift from savings to investments, and with Y1500 trillion in household savings that’s a huge potential market. We already have something like Y60 trillion in deposits in Japan and are looking to increase that.

What about outside Japan? The focus among your Japanese peers seems to be on Asia.

We have a strong base in Asia, and are looking to boost investment banking revenues by leveraging our huge network of Japanese corporate clients. For example, of the roughly 1000 Japanese firms operating in Indonesia, we do business with 800 of them.  Elsewhere in Asia, our subsidiary Mitsubishi UFJ securities is trying to acquire a securities firm in Singapore, the Bank are investing further in Malaysia in the light of our success in Islamic finance there, and the Bank and Securities we’ve established a tie-up with the investment bank Challenger in Australia.

Japanese financial institutions have traditionally been much stronger at home than overseas; will this new phase of international expansion require a change in culture at the group and particularly the securities subsidiary?

The head of our securities section and I share an opinion on our strategy: Asia should be the main focus, and in looking at the development of its economy we do need to adapt to a new strategy. In investment banking the most important asset is experienced people, and we need to be hiring the most competent, capable professionals we can.

Yasumasa Gomi, Chairman and CEO of Mitsubishi UFJ Securities, is the man tasked with spearheading this change in culture. He has hired Joe Schmuckler, an experienced American banker most recently in charge of Nomura international, to help recruit experienced managers—regardless of their nationality.

IIt’s going to be a tough task to transform MUFJ Securities into a truly competitive global securities firm. How far have you got? What’s the plan for the next couple of years?

I feel like we’re finally at the starting point! The history’s important: we Japanese have relied a little too much on foreign investment in the past, the recent round of restructuring has perhaps not been wholehearted enough, the FSA were too focussed on overcoming problematic loans to have much attention to spare on real reform. The 80s really shaped the strategies and mentality of Japanese financial institutions: we had the world’s second largest economy, so we only needed to do business in Japan. Now that must change.

Look at the last 10 years in Asia’s so called ‘local’ markets like Bangkok, Kuala Lumpur and so on...you’d see the domestic bank names and the wall street firms doing deals, but did you see the Japanese names much outside Japan? No. Now the top tier of Japanese corporations have globalised, and our firm’s key philosophy must change from being a supporter of Japanese companies in Japan to a global financial institution.

So how do you go about actually implementing such a fundamental shift in business culture and outlook, especially at such a huge financial group?

Joe joining us was the first step. We need to fundamentally change the business culture from one of ‘by Japanese, for Japanese’ to thinking ‘who can do the best job for us in each local market?’ With Joe’s leadership we can become a player in London and the US—you can’t ignore those markets since that’s where the innovation happens—but the real focus at first is in Asia where we have clients and strong local ties. If we start from scratch, though, becoming a player in some of these Asian markets will take too long so we need to make alliances with the major players in each case.

Critics often argue that one problem for Japanese financial institutions overseas in the past has been the unwillingness to delegate—to give local management on the ground the key powers like hiring/firing authority, budget control and so on. Is that something you’re considering now?

When we get to the stage of 100% control of a local player in a given market, we can face that challenge. We have got experience of giving the powers you mention to local management with our acquisition of Union Bank of California, but ultimately we will have to give more responsibility to local management elsewhere in the world.