Finance

The Bank of Japan’s Monetary Easing Policy will Change Domestic Mega Banks

The Mitsubishi UFJ Financial Group (hereinafter, Mitsubishi), Sumitomo Mitsui Financial Group (hereinafter, Sumitomo Mitsui), and Mizuho Financial Group (hereinafter, Mizuho) are called Mega Bank Group.

With a market capitalization of 8 trillion yen for Mitsubishi, 5 trillion yen for Sumitomo Mitsui, and 4 trillion yen for Mizuho, ​​it is arguably a top-notch company. It was a company where you could feel relieved if your child got a job at Mega Bank, but contrary to the image of the world, Mega Bank itself is raising a sense of crisis. Large-scale restructuring has been a long-standing concern(※1).

For example, Mitsubishi’s stock price once exceeded 900 yen in 2015, but in 2021 it continues to fall short of 600 yen※2). Since 600 yen is 33% less than 900 yen, it can be said that the corporate value has dropped by more than 30%. Sumitomo Mitsui and Mizuho have similar trends.

Of course, Mega Bank isn’t just messing around with this situation. In this article, we will introduce the sense of crisis of Mega Bank and then explore how Mitsubishi, Sumitomo Mitsui, and Mizuho are trying to rejuvenate.

※1:https://www.nikkei.com/article/DGXMZO22847550Y7A021C1EA3000/
※2:https://finance.yahoo.co.jp/quote/8306.T/chart?styl=lne&frm=mnthly&scl=stndrd&trm=10y&evnts=volume&ovrIndctr=sma%2Cmma%2Clma&addIndctr=

What is the sense of crisis of Mega Bank?

The Bank of Japan’s monetary easing policy is attributed to the fact that Mega Bank has fallen into a crisis. Monetary easing lowers interest rates and sometimes introduces negative interest rates. Banks make a profit by lending money to companies and individuals to earn interest rates, so when interest rates fall, management becomes difficult.

Should I disband?

Mega Bank’s 2021 PBR has been around 0.4 times (* 3). PBR is called the price-to-book value ratio and is calculated by “PBR = stock price / net assets per share”. In PBR, you can see how many times the stock price is the net assets per share.

The stock price is the price of a company that investors are willing to buy. Net assets per share is the dissolution value of the company, that is, the value at the time of dissolution.

Therefore, if the PBR is lower than 1x, it is better for shareholders to dissolve the company and distribute the assets than to have the company continue its business. A PBR of 0.4 times is like a company that has 1 million yen for sale for 400,000 yen. In other words, it can be said that a company that has 1 million yen but can only sell 400,000 yen.

That’s how the market is paying close attention to Mega Bank.

※3:
https://finance.yahoo.co.jp/quote/8306.T
https://finance.yahoo.co.jp/quote/8316.T
https://finance.yahoo.co.jp/quote/8411.T

Normal Revenue, Ordinary Income, and Net Income all Decreased for 2 Consecutive term

「To confirm the “strictness of real money,” let’s take a look at Sumitomo Mitsui’s consolidated financial results for the fiscal year ending March 2021(※4).

Ordinary income was about 3.9 trillion yen, down 15% year-on-year, ordinary income was 711.0 billion yen, down 24% year-on-year, and net income was 512.8 billion yen, down 27% year-on-year. The number of triples decreased in the previous term, so it is a severe result for the second consecutive term. The company analyzes the cause of this defeat as follows(※4、5).

●Credit costs increased at investees in Asia
●Domestic credit-related costs increased due to
corona damage
●Overseas business-related operating expenses increased due to corona damage
●Settlement and consumer finance decreased due to sluggish domestic consumption
●Gain on sale of strategically held stocks decreased
●Loss in futures trading

This is the case of Sumitomo Mitsui, but the other two Mega Banks are not optimistic. So what kind of measures are Mega Bank trying to take?

※4:https://www.smfg.co.jp/investor/financial/latest_statement/2021_3/2021_fy_01.pdf
※5:https://www.smfg.co.jp/investor/financial/latest_statement/2021_3/2021_fy_setumei.pdf

Mitsubishi Changes Like This

Mitsubishi has clearly stated that it will make money overseas.

In 2018, we abolished the international division and established a domestic and overseas integrated sales system(※6). The reason why I abolished the international sector even though I was trying to earn money overseas is because I do not give special attention to international business. If you think of “sales as international sales,” you don’t have to put the word “international” in the name of the department.

HSBC, the world’s largest bank, has reached 70% of its overseas business, and Mitsubishi has declared that it will aim for this HSBC(※6).

But this is not a reckless ambition. Mitsubishi’s internationalization is steadily progressing, and the net operating income of both domestic and overseas businesses is changing as follows(※7).

<Trends in Mitsubishi’s domestic and overseas net operating income>

 

Business Name

2019

2020

Comparison

Domestic

Corporate, Retail, Entrusted Property

3,609

3,424

-5%

Overseas

Corporate Banking, Global CIB, Global Commercial Banking

6,208

6,713

8%

(The market business is divided into domestic and overseas, so it is excluded here.)

Domestic business is down 5%, while overseas business is up 8%. Furthermore, in fiscal 2020, overseas business is nearly double that of domestic business.

※6:https://www.nikkei.com/article/DGXMZO22127780R11C17A0EE9000/
※7:https://www.mufg.jp/dam/ir/presentation/2020/pdf/slides2103_ja.pdf

Sumitomo Mitsui Changes Like This

Sumitomo Mitsui is also strengthening its overseas shift, and the most notable is its expansion into Vietnam.

Sumitomo Mitsui announced in April 2021 that it would invest up to 150 billion yen in FE Credit, the largest non-bank in Vietnam(※8). FE Credit has a 50% share of the Vietnamese consumer loan market and is also focusing on FinTech, such as launching a digital bank that can be operated with a smartphone.

Vietnam’s economy was growing at the 7% level a year before Corona. If the economy becomes stronger and the economy is booming, people’s willingness to consume will increase and the number of consumer loan users will increase. Sumitomo Mitsui is about to ride the wave.

In addition, Sumitomo Mitsui’s own DX (digital transformation) conversion is urgent(※9).

Use AI (artificial intelligence) developed by Google to streamline referral response support operations at call centers. When the person in charge who receives a call or email from a customer uses this system, a document containing the contents to be answered to the customer appears, and the information can be provided accurately and in a short time. It reduces the burden on call center personnel and improves the quality of service to customers.

If this AI call center business is on track, we are planning to sell it outside the company. In other words, DX will be used to reduce costs and improve customer satisfaction, and DX will also be used to launch new businesses.

※8:https://www.nikkei.com/article/DGXZQOUB282LU0Y1A420C2000000/
※9:https://www.nikkei.com/article/DGXZQOFK044ZJ0U1A300C2000000/

Mizuho Changes Like This

In the case of Mizuho, ​​there is a different crisis than Mitsubishi and Sumitomo Mitsui. It is the weakness of computer systems.

In 2002 and 2015, a large-scale system failure occurred, and in February 2021, 80% of Mizuho’s ATMs nationwide became unusable, which became a social problem and was disposed of by the Financial Services Agency.

Mizuho’s system is causing problems at a pace of about once every 10 years. There was a voice within Mizuho that “I feel the principle of doing nothing (in-house)”, and the president of Mizuho Bank had to admit that “there is still an inward-looking idea that is vertically divided”(※10).

「In July 2021, Mizuho invited an executive from IBM Japan to return the stigma of “System Trouble Mizuho.” In addition, we will appoint IT personnel as executives to build a robust system.

As Mizuho’s positive move, we can pay attention to transition finance, which is one of the decarbonization strategies(※11).

トTransition, in the sense of transition, provides financial support (finance) to companies working toward decarbonization. The Ministry of Economy, Trade and Industry estimates that the environment-related market, including decarbonization, will reach 300 trillion yen in Asia alone(※12).

The decarbonization business requires huge amounts of money, whether it is solar, wind or hydrogen energy. Transition finance seems to be a “Mizuho-like” new business, as it is the specialty of Mega Bank to collect large amounts of money and boost the leading markets.

※10:https://www.nikkei.com/article/DGKKZO73113060R20C21A6EE9000/
※11:https://www.mizuho-ir.co.jp/publication/column/2020/1223.html
※12:https://www.env.go.jp/council/06earth/y0611-12/mat03-2.pdf

Summary – Entrusted with Driving the Japanese Economy

Japan has major problems of population decline and aging. Businesses such as smartphones, semiconductors, internet services, home appliances, and renewable energy are being pushed by foreigners. It has been a long time since China was overtaken by GDP, and it is said that it is only a matter of time before India is overtaken(※13).

The power of financial institutions is indispensable to stop the decline of the Japanese economy and achieve a V-shaped recovery (* 14). And especially the Mega Bank Group is in a position to lead the financial industry, so we have to get the most “work hard”.

We need to keep an eye on changes in Mega Bank.

※13:https://www5.cao.go.jp/keizai-shimon/kaigi/special/future/sentaku/s3_2_15.html
※14:https://www.fsa.go.jp/news/30/For_Providing_Better_Financial_Services.pdf