MUFG plans to make inroads into Canadian market with capital markets platform

TORONTO – Mitsubishi UFJ Financial Group Inc. is looking to build a capital-markets platform in Canada, with plans to hire as many as 10 people in Toronto to manage bond deals and stock sales by early next year.

It’s a significant shift for a Japanese bank that’s kept a low profile in the country for decades.

“It’s a natural extension of our business as a relationship bank,” Craig Gardner, head of Canadian corporate banking, said in an interview at the firm’s Toronto office. “Our strategy isn’t to become a book runner or lead arranger on every Canadian deal — we’ll pick our spots — but we want to be meaningful to customers.”

MUFG’s Canadian strategy mirrors that in the U.S., where the firm has been remaking its investment-banking unit to look more like bigger Wall Street rivals. The lender is among Japanese banks including Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. looking overseas for revenue and growth opportunities as negative interest rates have crimped domestic markets.

The Tokyo-based financial firm, which has been in Canada for 63 years, accelerated its push into capital markets after receiving a domestic securities license last year. MUFG has since landed some high-profile deals, including co-leading acquisition financing for Alimentation Couche-Tard Inc. and Canadian Natural Resources Ltd., and acting as joint book runner on Fortis Inc.’s $2 billion bond sale. Those transactions, along with managing a number of Canadian dollar-denominated financings, proved to Mitsubishi UFJ that there’s enough business to set up shop, Gardner said.

“What we’re in the midst of now will be proverbial boots on the ground,” said Gardner, a 51-year-old managing director. “The organization is investing more, both to be able to support debt capital markets, equity capital markets and then, further on, full capabilities around FX and ideally derivatives.”

The bank plans to hire a chief executive officer for the Canadian securities business along with “a handful” of salesmen and traders, as well as support staff, said Gardner, who joined MUFG in 2015 after almost two decades at Royal Bank of Canada. He now oversees an operation with 145 employees in Toronto, Montreal, Calgary, Alberta, and Vancouver, British Columbia.

MUFG is undertaking the expansion to complement its corporate-banking business, which has seen “exponential” growth in Canadian loan and fee volumes in the past decade, Gardner said. The lender’s forecast is for compound annual growth of 24 percent for the three years through March 2018, he said. Loan balances in Canada were $15 billion as of March 31.

“They really stepped up during the financial crisis when other banks were retreating,” Gardner said. “They put a lot of loans on the books to support their core relationships and, like any institution, were looking for return on those investments and obviously a return on the strategy.”

Beyond the large investment-grade firms that MUFG has traditionally focused on, Gardner said he sees growth potential in going after medium-sized Canadian companies with lower credit ratings.

“The sweet spot is the higher end of the midcorporate space, but in verticals that we know: power and utilities, resources, diversifieds and particularly things like retail and other areas, like transportation,” Gardner said.

Canadian capital markets are dominated by the nation’s six largest lenders, which crowd out foreign investment banks when it comes to arranging stock sales, bond issues and syndicated loans. MUFG ranks eighth so far this year as lead arranger on company loans with a 4 percent market share after lending 4.1 billion Canadian dollars ($3.3 billion) on 10 deals, according to data compiled by Bloomberg. It ranked 11th in 2016 with CA$4.4 billion of loans from 13 deals.

Gardner said he’s realistic about making inroads against large domestic competitors.

“The Canadian bank market is still a clubby market,” he said. “It is hard to crack.”