Japanese Banks Shift Strategy on Lending
Japanese banks, seeking a bigger market for their money in the United States, are shifting their lending strategies by targeting middle-size corporations and expanding beyond the confines of California.
Departing from a pattern of taking over banks to expand retail or consumer services networks in California, where they own three of the 10 largest banks, the Japanese in the past two years have bought a commercial finance unit, a leasing company and a bank that has out-of-state branches.
An official of Mitsubishi Bank’s international planning division predicts that the Japanese will begin establishing leasing subsidiaries in the United States or buying other American leasing operations in about a year.
By acquiring non-bank financial institutions, the Japanese are able to circumvent U.S. federal laws that ban interstate banking, yet offer bank-related services such as commercial financing.
Among the major transactions:
- In March, 1983, Fuji Bank agreed to pay $425 million to buy two subsidiaries of Walter E. Heller International, the Chicago-based financial services company. Heller has 68 offices, most of them in the United States.
- In August, 1983, Mitsubishi agreed to buy BanCal Tri-State Corp., parent of the state’s eighth-largest and oldest bank, the Bank of California, for $282 million. BanCal has a trust department and four branches in Washington and Oregon, having established them before the 1927 McFadden Act outlawing interstate banking.
- Last November, Sanwa Bank announced that it would buy two leasing businesses affiliated with Continental Illinois Corp., the holding company of the financially troubled Continental Illinois Bank. It agreed to pay $50 million and assume payment on debts of $450 million, topping the Heller deal as the largest acquisition by a Japanese bank. The Continental leasing offices are in Los Angeles, Atlanta, Boston, Chicago, Dallas and San Francisco.
All of the acquired operations are rich in middle-market clientele, which is roughly defined as companies with sales of under $100 million a year. BanCal’s client list contains some high-technology component suppliers, while Continental has computer and medical equipment-related concerns.
Big U.S. corporate customers are not as attractive today for the Japanese.
“That market is basically gone. No bank, U.S. or foreign, is able to find the profit margins it wants,” said John H. Quinn, vice president of Security Pacific National Bank’s Tokyo branch.
Bankers in Tokyo speculate that Dai-Ichi Kangyo Bank, the world’s largest, will be the next to acquire an American financial institution.
Loaded with plenty of deposits, a slowdown in domestic economic growth and the decline of smokestack industries in Japan, Japanese banks began looking for overseas borrowers in the late 1970s. They were eager to issue loans to hungry Latin American countries--whose economies turned sour in 1982 with the worldwide recession, bringing about the debt crisis.
That encouraged Japan’s banks to take a second look at the United States, the world’s largest banking market, where they have been active since before World War II.
With the U.S. economic recovery, large corporations--unlike smaller firms--are not starving for loans. Banks also can command higher interest rates on loans to middle-size companies because they have lower credit ratings than the big corporations.
Sumitomo Bank, Japan’s most profitable financial institution with net income of $360 million in fiscal 1983, says it plans to strengthen its U.S. commercial banking activities using the existing branch network of the Sumitomo Bank of California, its wholly owned subsidiary.
