SYDNEY/TOKYO – The upheaval in Australia’s scandal-tainted banking industry has handed Japan’s largest banking group a long-awaited opportunity to get a bigger foothold in the global asset management industry.
Mitsubishi UFJ Financial Group Inc. on Wednesday agreed to buy Commonwealth Bank of Australia’s global asset management unit for 4.13 billion Australian dollars ($2.9 billion). The deal adds AU$213 billion of assets under management across the U.S., Australia and Asia.
MUFG has been exploring acquisitions to diversify from its domestic lending businesses, which are constrained by low interest rates and a shrinking population. The bank said it will have $727.2 billion in assets under management after the transaction, vaulting it to the top of the Asia-Oceania rankings and giving it a platform to become one of the 15 largest managers worldwide.
“It is important to secure a certain size to maintain profitability and competitiveness,” MUFG said in a presentation on the deal. It aims to become “the unparalleled industry leader in Japan, as well as a global player boasting significant presence overseas,” the Tokyo-based bank said.
The deal will help its asset management and investor services business contribute 7 percent of gross profit, up from 5 percent in the year ended March, it said.
The acquisition is a “step in the right direction” for MUFG because the domestic market doesn’t offer enough potential alone to expand the business, said Toyoki Sameshima, a senior bank analyst at SBI Securities Co. in Tokyo.
MUFG is building its presence in an industry where intensifying competition from low-cost passive funds is putting pressure on fees globally, spurring firms to merge to boost their scale. Recent consolidation includes the combination of Standard Life PLC and Aberdeen Asset Management PLC. UBS Group AG is weighing acquisitions and joint ventures for the business to help it compete with larger rivals, people with knowledge of the matter said.
For Commonwealth Bank, the sale accelerates CEO Matt Comyn’s move to focus on its more profitable domestic banking business. Like its rivals, Commonwealth Bank is facing a tougher operating environment as the end of Australia’s property boom dampens revenue growth and compliance costs rise in the aftermath of a series of scandals.
The sale means the unit, known as Colonial First State Global Asset Management, won’t be included in Commonwealth Bank’s previously announced plan to spin off its wealth management and mortgage-broking business. The slimmed-down demerger will still go ahead in late 2019, the Sydney-based bank said in a separate statement.
Unlike the asset management arm, the wealth operations have been the main source of scandals that have sullied the reputation of Australia’s biggest bank and helped lead to a wide-ranging inquiry into bank misconduct, which is expected to usher in tougher regulation.