Japan Banks Return to Global Stage After A Decode and A Half of Retrenchment

Japan's big banks are quietly expanding their lending business in the global market as many U.S. and European banks, facing mounting losses from the credit crisis, begin to tighten their spigots. Thanks to their conservative styles adopted after their long struggle with bad loans in the 1990s and the early part of this decade, Japanese banks such as Mitsubishi UFJ Financial Group Inc., known as MUFG, and Sumitomo Mitsui Financial Group Inc., known as SMFG, have posted relatively narrow losses from securities affected by the U.S. mortgage problems. Now the banks, armed with huge assets gathered from Japanese savers, are turning this situation into an opportunity to become powerful suppliers of loans to fund costly acquisitions and infrastructure projects around the world. At Bank of Tokyo-Mitsubishi UFJ Ltd., the primary banking unit of MUFG, Japan's largest bank by both assets and market value, the balance of overseas lending jumped by roughly 20% in the last quarter of 2007 to 12 trillion yen, or about $115 billion, and has continued to grow this year. In March, it and Mizuho Financial Group Inc. were among the eight arrangers for a $3 billion loan taken out by India's Tata Motors Ltd. to pay for its acquisition of Ford Motor Co.'s Jaguar and Land Rover brands, according to people familiar with the deal. While MUFG and other Japanese banks are still far behind their Western peers in areas like investment banking, their growing presence in the loan market marks an important step forward as these banks slowly try to return to the global stage after a decade and a half of retrenchment. During Japan's asset boom in 1980s, these banks stirred fear among their Western rivals with splashy deals such as the acquisition of Union Bank of California by one of the predecessor banks of MUFG, and the purchase of a major stake in Goldman Sachs Group by one of SMFG's predecessors. But they were forced to spend the 1990s and the early part of this decade coping with their domestic bad-loan problems. During the past few years, the big banks have regained their financial health and seen their earnings grow. Yet their focus has been building domestic businesses in areas like wealth management and credit cards. The market turmoil has given Japanese banks a sudden edge in the world's loan market. While subprime-related losses forced big Western banks such as Citigroup and UBS AG to shrink their operations and raise money to mend their depleted capital basis, Japanese banks have remained awash with funds thanks to the nation's investors, many of whom prefer keeping money in bank deposits, rather than investing in stocks or bonds.