Samurai versus formosa: a tale of two bank funding markets

Louise Bowman
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The search for liquidity has driven many bank treasurers to explore greater diversification in their funding programmes.

Gina Orlins, head of long-term funding at Credit Suisse, tells Euromoney that funding from non-US currencies at the bank has grown from between $1 billion to $2 billion pre-crisis to around $6 billion today. 

In the first half of 2015 many banks have turned to the samurai market in Japan and the formosa market in Taiwan in search for funding diversification. But the difference in approach has been quite striking. 

Credit Suisse is one of a number of European banks to have tapped both markets this year, the others being Standard Chartered, Société Générale, Lloyds and Rabobank. 

However, bank issuance in the formosa market has swamped that in the much larger samurai market: $11.9 billion-equivalent to $7.4 billion-equivalent, according to Dealogic. Some 17 banks issued in the former and nine in the latter – not one of the samurai issuers was from the US.

Indeed, the relative activity of the large US banks in the two markets could hardly be more different. Five of the six largest issuers in the formosa market have been US banks, who between them have tapped the market for $5.8 billion this year – roughly half of all issuance. However, they have issued nothing at all in the samurai market. 

The complete absence of the US banks from the samurai market in the first half of 2015 is a clear sign of the differing need for funding diversification at US and European banks. The US players have a large and liquid dollar market to tap and have been building up their capital positions for years. Many European banks have a far greater need for diversity and are prepared to tap every investor pool available to them – despite the logistical challenges that this may entail. 

“Issuing in the samurai market is a lengthy process and there is a lot of documentation involved,” points out Stephane Landon, head of group ALM and treasury at Société Générale. “It doesn’t have the flexibility of other markets. You have to prep for something that will take place in six months time, which can be quite cumbersome.” 

However, for issuers prepared to negotiate this time-consuming and costly exercise the rewards are there in a growing and receptive investor base. 

“We feel that there are more and more investors in Japan interested in samurai issuance,” Landon adds. “The reach of the investor base is increasing. It used to be just Tokyo-based investors but now we see more and more interest from investors outside Tokyo as well. The dynamic is going in the right direction.”