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Cablegate: Japanese Financial Companies Acting in U.S.

VZCZCXRO2170
OO RUEHDE RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #2679/01 2700848
ZNR UUUUU ZZH
O 260848Z SEP 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7538
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0240
RUEHBJ/AMEMBASSY BEIJING PRIORITY 5541
RUEHRL/AMEMBASSY BERLIN PRIORITY 1495
RUEHSW/AMEMBASSY BERN PRIORITY 1834
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2789
RUEHDO/AMEMBASSY DOHA PRIORITY 0273
RUEHKU/AMEMBASSY KUWAIT PRIORITY 0388
RUEHLO/AMEMBASSY LONDON PRIORITY 2192
RUEHOT/AMEMBASSY OTTAWA PRIORITY 9728
RUEHFR/AMEMBASSY PARIS PRIORITY 6274
RUEHRH/AMEMBASSY RIYADH PRIORITY 0596
RUEHRO/AMEMBASSY ROME PRIORITY 2169
RUEHUL/AMEMBASSY SEOUL PRIORITY 1536
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 7222
RUEHDE/AMCONSUL DUBAI PRIORITY 0107
RUEHFT/AMCONSUL FRANKFURT PRIORITY 0528
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0073
RUEHHK/AMCONSUL HONG KONG PRIORITY 6587
RUEHNAG/AMCONSUL NAGOYA PRIORITY 8163
RUEHNH/AMCONSUL NAHA PRIORITY 2432
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 3815
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0648
RUEHBS/USEU BRUSSELS PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 7154

UNCLAS SECTION 01 OF 03 TOKYO 002679

SENSITIVE
SIPDIS

STATE FOR E, EEB, AND EAP/J
TREASURY FOR OIA DOHNER
STATE PASS USTR FOR CUTLER, BEEMAN

E.O. 12958: N/A
TAGS: ECON EFIN PREL JA
SUBJECT: JAPANESE FINANCIAL COMPANIES ACTING IN U.S.
FINANCIAL CRISIS

SENSITIVE BUT UNCLASSIFIED. CONTAINS PROPRIETARY INFORMATION.

1. (SBU) SUMMARY: Japanese financial companies are picking
up assets available as a result of the failure of Lehman
Brothers and other U.S.-based financial firms to grow their
international presence. Announcements Japan's largest bank,
Mitsubishi UFJ Financial Group (MUFG), would purchase 10 to
20 percent of Morgan Stanley and that Nomura Securities would
buy both Lehman Brothers' Asian Division and its European and
Middle Eastern Division are three early examples of Japanese
financial firms with sufficient cash on the books taking
advantage of American firms' hardships. Other notable
investment activity includes Sumitomo Mitsui Financial Group
(SMFG)'s 100 billion yen ($95 billion in stock) financial
assistance to Barclays PLC. The early moves on the
investment banking and securities side could be followed in
the days and weeks to come with purchases of divisions on the
insurance side. Either way, events in the U.S. are changing
the global face of Japanese financial companies. END SUMMARY.

--------------------------------------------- ---------
GOLDEN OPPORTUNITIES FOR JAPANESE FINANCIALS TO EXPAND
--------------------------------------------- ---------

2. (SBU) The September 22 announcement that Mitsubishi UFJ
would purchase a 10 to 20 percent stake of Morgan Stanley, a
deal that could be valued at as much as $8.5 billion (pending
pre-purchase due diligence by MUFG), was followed by Nomura
Securities' September 22 and 23 announcements that it had out
bid Barclays PLC for Lehman Brothers Asian Division (valued
at $225 million) and European and Middle Eastern Division
(value was not disclosed). The financial troubles of the
American firms presented MUFG and Nomura with opportunities
to expand quickly and inexpensively their global presence. A
Nomura executive, following the Asia deal, described the
purchase of Lehman Brothers' division as a
"once-in-a-lifetime opportunity." The purchase of both the
Asian Division and the European and Middle Eastern Division
adds up to 5,500 employees to Nomura's payroll,
highly-skilled and profitable employees Nomura executives
have indicated they intend to retain. Bank analyst Yuki
Honjo characterized the moves as the benefit of overly
prudent behavior; "Japanese banks missed out on the financial
party of the century because they were at home grounded,"
alluding to Japan's relative lack of exposure to sub-prime
related losses.

3. (U) Nomura's purchases expand its operations in Asia by
adding offices in Australia and India, and in Europe and the
Middle East with offices in Germany, the UK, Dubai, Kuwait,
and Qatar. Nomura has a significant presence in most of
these places, particularly in Asia, but the acquisitions
include first-rate talent and expertise they now lack. The
purchase also keeps Lehman Brothers' Asian Division and
European and Middle Eastern Division out of the hands of
other competitors and is part of Nomura's strategy to
increase revenue from global operations to over 30 percent of
total revenues by 2011.


TOKYO 00002679 002 OF 003


------------------
MONEY ALSO FLOWING
------------------

4. (U) Japanese financial companies are also injecting funds
into troubled firms in the U.S. and UK. MUFG's plans to buy
10 to 20 percent of Morgan Stanley was followed by Sumitomo
Mitsui Financial Group's (SMFG) September 23 announcement it
is providing 100 billion yen to Barclays PLC, the same firm
that lost out to Nomura for Lehman Brothers' assets in Asia.


5. (SBU) Some journalists in Japan and even an editorial in
the Financial Times are claiming Japan is now reviving the
role of the U.S. when its financial firms helped bail out
Japanese financial companies during the 1990s real estate-led
financial crisis. While commentary blaming the United States
for the global financial system's woes has been muted, there
is an underlying feeling of "America getting its just
desserts" for developments over the last ten years.
Commentators point out Japan's banks have cash on their
balance sheets and that U.S. firms need the money.

--------------------------------------------- ---
ANNOUNCEMENTS IN THE INSURANCE SECTOR TO FOLLOW?
--------------------------------------------- ---

6. (SBU) Executives of international and domestic insurers in
Japan were tracing out possible industry acquisitions within
hours of the September 16 announcement of the New York Fed's
$85 billion line of credit to AIG. AIG has seven life,
non-life, and reinsurance companies in Japan, as well as
three investment management companies and one securities
house. AIG's life insurance operations constitute about
one-quarter of its global life insurance business, and its
Japan operations employ about 26,000 of its 116,000 total
direct employees.

7. (SBU) Media here report all of AIG's insurance operations
in Japan appear healthy, with good revenue and stable
management. Due to insurance regulations, each of AIG's
insurance subsidiaries maintains a capital reserve for its
own products.

8. (SBU) Domestic insurers are showing interest in acquiring
AIG subsidiaries, but that interest is tempered by the
unknowns surrounding the bailout. Some subsidiaries are
believed to carry AIG stock on their balance sheets, for
example, which has led to press speculation about how the
companies' values may have changed with AIG's stock tumble.
Japanese consumers also put an extremely high premium on
safety and security, which means the bailout has damaged
AIG's brand. To reassure consumers, AIG took out full-page
advertisements in Japanese newspapers over the September
21-22 weekend, but as one company executive told an Embassy
official, "No one wants to do business with us right now."
While sales may be in the works, AIG's $85 billion line of
credit appears to have kept the pressure off the company and
possible suitors to rush into deals.

TOKYO 00002679 003 OF 003

--------------------------
ROOM FOR CHEER AMID GLOOM?
--------------------------

9. (SBU) Japanese financial firms' acquisitions could help
them regain a certain measure of the respect they lost during
Japan's 1990s financial crisis. Calling the purchases a
once-in-a-generation opportunity, Kenichi Watanabe, Nomura's
President and Chief Executive said, "our ability to
capitalize on this opportunity in spite of such volatile
markets reflects our financial strength and demonstrates how
well we have managed the financial crisis." Nomura, SMFG,
and MUFG's oft-criticized, low yield cash reserves now
provide a platform for Japanese banks to buy these assets at
steep discounts. These transactions should not only result
in better returns for the firms in the years ahead, but also
potentially raise the profiles of Nomura, SMFG and MUFG on
the global banking scene. The question remains, though, of
what these Japanese firms have learned from their mistakes of
the past.
SCHIEFFER

© Scoop Media

 
 
 
 
 
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