Business / Corporate

Japan's MUFG agrees to buy German lender DZ Bank's aviation finance arm for ¥710 billion

by Steven Arons and Yuki Hagiwara

Bloomberg

Mitsubishi UFJ Financial Group Inc. agreed to buy DZ Bank’s aviation finance division in one of its biggest acquisitions since it was created in 2005.

The assets MUFG bought from Germany’s second-largest bank, held by its subsidiary DVB Bank, include a loan portfolio of €5.6 billion (¥710 billion) as well as the unit’s employees and “parts of the operating infrastructure,” according to news releases from both banks on Friday.

The deal is the latest for Japan’s biggest bank in a spate of acquisitions abroad as it seeks to make up for diminishing returns in a country that’s beset by rock-bottom interest rates and slow economic growth.

MUFG’s recent transactions include its purchase of an additional stake in PT Bank Danamon Indonesia and an agreement to buy Commonwealth Bank of Australia’s asset management unit. At the same time, MUFG has been selling holdings in companies such as Standard Life Aberdeen PLC and Brazil’s Banco Bradesco SA to improve the efficiency of its investments and free up capital.

“It’s a move in the right direction,” said Toyoki Sameshima, a senior bank analyst at SBI Securities in Tokyo. “MUFG has been shifting assets to more profitable areas. My overall impression is positive.”

MUFG has been expanding its aviation finance business in recent years, and in 2016 hired industry veteran Olivier Trauchessec to lead a push into the Americas. Other Japanese financial firms, such as Orix Corp. and Sumitomo Mitsui Financial Group Inc., have been making acquisitions in aircraft leasing.

“Aviation Finance is a key growth pillar for MUFG and this acquisition will see a step-change in our ability to offer bespoke solutions to our clients,” Masato Miyachi, a senior managing corporate executive, said in the statement. “We are excited to be welcoming lots of experienced professionals to our established team, enabling us to broaden our customer base and cement our position as a leading player in this space.”

Shares of MUFG closed 0.3 percent higher on Friday afternoon in Tokyo, after sliding as much as 0.4 percent earlier.

The sale of the aviation portfolio is the next step for DZ Bank in its effort to wind down or sell DVB. It recently signed a deal with another German lender, Helaba, for the sale of its railway lending portfolio. Deutsche Bank AG was previously interested in buying the aviation assets too, people familiar have said.

DVB Bank recorded a loss of €774 million in 2017, ripping a deep hole into its parent’s annual statement as DZ Bank was forced to boost its loan loss provisions. DZ Bank will report its 2018 results on March 5.

Japanese companies have announced $18.4 billion in overseas acquisitions so far this year, after the volume of such deals more than doubled in 2018 to a record $190.4 billion, according to data compiled by Bloomberg. The largest M&A deal globally last year was Takeda Pharmaceutical Co.’s $62 billion purchase of Shire PLC.

Tokyo-based MUFG held talks to buy DVB more than four years ago, before the negotiations ended due to disagreements about the deal structure, it was reported at the time. The mega-bank was formed when its predecessor bought UFJ Holdings Inc. in 2005 in a deal valued at ¥3.1 trillion.

The deal with DZ Bank is expected to close in the second half of the year. The purchasing entities are MUFG Bank Ltd. — the lender’s main banking unit — and its affiliate BOT Lease Co.