Mitsubishi UFJ pivots back toward Japan as Krugman laments economy

Mitsubishi UFJ Financial Group Inc., the lender that has made about $13 billion in acquisitions overseas since its founding a decade ago, is making a pivot toward its home market.

“A financial institution’s mother market should be its first priority,” Nobuyuki Hirano, president and chief executive officer of Japan’s largest bank, said in an interview. “We’re seeing clear signs that capital investment is gaining traction.”

Hirano’s optimism that Prime Minister Shinzo Abe will be able to reignite the economy after a second-quarter slump contrasts with Nobel laureate Paul Krugman, who said that he’s “really worried” about Japan’s prospects. Mitsubishi UFJ has sought to protect itself from a sluggish domestic market with acquisitions from the U.S. to Thailand that have helped more than double its overseas loan balance over the past five years.

“If and when the economy starts to expand in line with what the government had hoped, banks will begin to reinvest more domestically,” said Jonathan Cornish, Hong Kong-based head of North Asia banks for Fitch Ratings Ltd. “But let’s not also forget the fact that profitability here is very much constrained, so I think that they will continue to have an interest overseas.”

Hirano, 63, said his bank intends to tap into demand for funds on the back of strong performances by the nation’s companies in recent years. He’s also seeking to boost fee income from retail businesses as individuals increasingly look to invest their savings amid Abe’s attempts to reflate the economy.

Pretax profit at large Japanese companies other than financial firms rose by 30 percent from a year earlier in the quarter ended June, according to a September research note by Nomura Holdings Inc. Earnings are estimated to climb 15 percent in the 12 months ending March and 8.8 percent next fiscal year, according to the report.

Spending is beginning to filter down to small and medium-size enterprises as well as larger companies, Hirano said. While changes in Japan’s demographics are a challenge, they also present opportunities for financial business aimed at individuals, he said.

Data on business investment in Japan are mixed. The nation’s largest companies plan to increase spending by 9.3 percent in the year ending March, the most optimistic plans since 2007, according to the Bank of Japan’s latest “tankan” business sentiment survey. At the same time, a drop in capital expenditure was one reason why the economy shrank an annualized 1.2 percent in the quarter ended June.

Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target, hampered by falling oil prices.

“Japan has spent a long time in this deflationary trouble,” he said at a conference in Tokyo on Sept. 9.

The “missing piece” in Mitsubishi UFJ’s overseas business is an asset-management platform in the U.S., according to Hirano, who said the bank has prepared a shortlist of companies it may consider acquiring. “Our price range is in the billions rather than hundreds of millions” of dollars, he said, declining to comment specifically on potential targets or progress.

Hirano also confirmed that his company is interested in acquisitions such as General Electric Co.’s leasing business in Japan, while declining to elaborate. He said the bank is seeking “business platforms,” which may include personnel or customers, rather than simply buying assets.

“We must build robust business foundations,” he said.