Mizuho Financial Group: Exporting domestic strength
Japan's Mizuho is one to watch in the region as it builds on its domestic strength to move into overseas markets.
Seiji Imai, Mizuho: focusing on wholesale banking in Asia
Seiji Imai, an affable career banker who is head of Mizuho’s global corporates division, appears to have an answer for everything.
Over the course of a wide-ranging interview in the bank’s Tokyo headquarters, it becomes clear he has thought deeply about Mizuho’s global business. But one question almost appears to stump him: which Asian banks would make good acquisition targets for Mizuho?
It is a crucial question facing Japan’s megabanks, which include Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group alongside Mizuho. These institutions are all being forced to contend with a domestic market that offers negative interest rates, weak economic growth and an aging population.
At the same time, the megabanks’ domestic clients are expanding across Asia, either to tap a cheaper labour force or find new clients. Economic growth in China, the Philippines, Indonesia and elsewhere offers further potential to drum up new clients from these countries.
The solution would appear to be obvious: expand overseas with a few large acquisitions. But the megabanks have a thorny problem – their sheer size. They all have assets in excess of $1.7 trillion, according to S&P Global Market Intelligence.
Finding an acquisition target that will make a difference to the bottom line is difficult. Finding one that actually fits the business model is even tougher.
“We are focusing on wholesale banking in Asia, so conventional retail banks aren’t attractive for us at the moment,” says Imai. “We also need to make sure we pay a fair price, which will be difficult at the moment. The other hurdle is ensuring we go after banks with appropriate governance in place.
“That doesn’t mean we won’t make acquisitions. We are looking. But so far, we haven’t found an appropriate candidate.”
Mizuho’s approach to international business can be summed up with a look at the Global 300, a list of the biggest companies outside Japan with which the bank does business. The number of companies in itself reflects Mizuho’s rising global ambitions. The Global 300 was born out of an earlier list, the Super 30, which in fact targeted 120 companies, equally split between east Asia, the Americas, Europe and the Asean region.
The list serves a dual purpose for Mizuho. It reveals weaknesses as well as strengths. For example, although 100 of those 300 corporations are based in Asia ex-Japan, only 10 or so are Chinese. That is not a bad total for a bank that historically built its Chinese business by serving multinational corporations in the country, but it is clear that getting closer to Chinese clients is important to Mizuho, as it should be for most banks with global ambitions.
It is clear that getting closer to Chinese clients is important to Mizuho, as it should be for most banks with global ambitions
“It is one of our crucial strategic targets,” he says. “It is not easy. For example, it has been difficult to analyze the credit profile of Chinese clients – and we have no plans to change our approach to risk. But we have hired a team to help us better understand risks in China. There are huge opportunities there.”
Mizuho employs roughly 10,000 people overseas: more than 50% of them are in the rest of Asia, 25% in the Americas and 20% in Europe, the Middle East and Africa.
The revenue split roughly reflects where Mizuho’s staff are based, but the US appears to be punching above its weight. In 2018, about 45% of offshore revenues came from Asia, 33% from the Americas and the remaining 22% from EMEA.
The bank’s strategy to serve its Asian client base has a few facets but the main ones are transaction banking and capital markets business. These are both areas where Mizuho thinks it can export its domestic strengths to the overseas markets.
“We are the strongest bank in the domestic debt market and we have been for a long time,” he says. “That gives us a major boost when talking to foreign clients, too.”
The numbers back this up. Mizuho has been at the top of the Japanese yen bond league table since 2005, when it claimed the leading spot from Daiwa Securities. In the loan market, it has been at the top since the start of 2010.
It has now started to turn this into international success, winning slots on large bonds this year, such as IBM’s $20 billion, eight-tranche deal and Anheuser-Busch InBev’s $15.5 billion offering. These mandates were no doubt helped by its growing presence in the US capital markets through a local subsidiary, something it expects to help when talking to Asian clients.
But can the bank’s expansion across Asian really make up for the uninspiring business environment at home? And can it reassure that a $6.1 billion charge it paid earlier this year, a quarter of which came from losses on foreign bonds, is really a one-off?
Imai is quick to point out that this charge did not come from the global corporate business. Instead, the hit came to foreign currency, mainly sovereign, bonds the bank bought years ago.
More importantly, for both Mizuho and its clients, the charge has not reduced the bank’s appetite for foreign risk.