SAN FRANCISCO, U.S. — Mitsubishi UFJ Monetary Group of Japan has grow to be one of many largest overseas lenders to American expertise firms and it’s now trying into banking extra earlier stage tech gamers because it continues ramping up its enlargement within the U.S. to offset stalling progress at house.
Invoice Davidson, MUFG’s international head of expertise, just lately talked to the Nikkei Asian Evaluate concerning the financial institution’s hunt for larger returns and the way the U.S. grew to become its largest marketplace for tech lending.
Based on knowledge offered by the financial institution, it has lent to 200 tech firms exterior Japan, over 100 of that are within the U.S., the place MUFG presently lends greater than $15 billion to the sector. To this point, MUFG has lent to 75% of the highest 100 U.S.-based expertise firms by income, the identical knowledge confirmed.
Davidson, who assumed his newly created position final 12 months, stated one purpose the financial institution has been capable of win over U.S. tech purchasers is its capacity to write down sizable checks. MUFG international property stood at round $2.7 trillion as of 2018, making it the world’s fifth-largest financial institution by complete property — bigger than some family names within the U.S., comparable to JP Morgan Chase and Financial institution of America. Because of this MUFG has a sufficiently big steadiness sheet to supply a mean of $150 million for lending to investment-grade firms. It has additionally enabled the financial institution to finish a number of multibillion underwritings off its steadiness sheet for consumer acquisitions.
The financial institution’s U.S. operations even have a excessive diploma of independence, in response to Davidson.
“Over time, the U.S. workplace has gained extra native decision-making authority which has helped assist the expansion in one in every of MUFG’s key markets exterior Japan,” he stated.
Davidson additionally attributes the financial institution’s thriving enterprise within the U.S. partly to classes in diversification that the nation discovered from the 2008 monetary disaster.
The disaster sharply curtailed the lending capacity of many U.S. and European banks, prompting companies that after relied closely on them to begin diversifying their borrowings.
“As a robust Asia-based international monetary establishment, MUFG brings much-needed diversification to any broad financial institution group of a mid-to-large cap company,” Davidson stated.
A lot of MUFG’s revenue presently comes from larger high quality however decrease yield company debt issued by giant U.S. tech firms. Now, in response to Davidson, the financial institution is eyeing alternatives in earlier stage tech firms, together with pre-IPO and high-growth center market tech firms.
“We proceed to search for alternatives in subsectors comparable to fintech and cloud computing, the place we see large progress potential,” Davidson stated.
He added that, as an alternative of investing in these excessive progress firms instantly, MUFG needs to begin out the relationships by offering them transactional banking providers comparable to deposit and step by step works its method into these firms’ financial institution group after they grow to be extra mature and lendable.
The danger-averse method is drastically totally different from one other Japanese large SoftBank, which been elbow deep in early-stage tech investing within the U.S. by way of its Imaginative and prescient Fund, a proven fact that analysts assume MUFG ought to benefit from by studying from and dealing with its compatriot.
“It is a vital transfer for MUFG to maneuver into larger progress tech firm lending and funding. It is a method for them to domesticate the tech market within the U.S., strengthen its community within the business and put together for stepping into new alternatives that may drive extra progress sooner or later,” stated Keisuke Moriyama, senior analyst at Macquarie Capital. “[But] provided that it’s late within the cycle, we do not anticipate these kind of funding to fruit within the close to time period.”
Based on Moriyama, MUFG will need assistance from some “gurus” comparable to SoftBank in figuring out alternatives in less-mature tech firms.
“It will likely be difficult,” he added.
MUFG has been working exhausting to construct up its fame within the U.S. market.
The financial institution’s alliance with Morgan Stanley, through which it acquired a 21% stake in 2008, is a priceless asset on this attaining this finish. The partnership has allowed MUFG to take part in lots of offers led by its American counterpart. And in January the 2 banks made one of many largest bridge loans ever after they offered $33.5 billion for Bristol-Myers Squibb’s $74 billion buy of Celgene. A deal that extensively seen as not possible for Morgan Stanely to underwrite alone with out the assist of MUFG’s giant steadiness sheet.
“We have now all the time been pleasantly stunned by MUFG’s alliance with Morgan Stanley, which has contributed to its steady progress within the U.S.,” Moriyama stated.
Different current high-profile offers involving MUFG embrace DXC Know-how’s $8.four billion acquisition of HPE’s enterprise options division. The financial institution was the lead arranger of its $Three billion debt financing.
Within the 2018 Funding Grade Bond Bookunner rating by Dealogic, MUFG positioned fifth by deal quantity and fourth by deal rely, and was first in each measures amongst non-U.S. banks. Regardless of this achievement, nevertheless, some institutional traders have expressed reservations about taking part in offers led by MUFG.
When the financial institution led financing efforts for Perspecta’s $3.1 billion spin-off from DXC Know-how in 2018, some potential lenders noticed the Japanese financial institution as an uncommon option to spearhead the deal, because it had solely led three different leveraged mortgage offers within the U.S. since 2010. Because the leveraged mortgage market is mostly much less liquid than different securities, traders choose bookrunners with sturdy market-making capacity, one thing MUFG was seen as missing.
However whereas MUFG isn’t brief on ambition, a few of its current makes an attempt to faucet new progress areas, together with its first time main a higher-yield bond providing within the U.S., have proved pricey.
In March, the Japanese financial institution beat out Credit score Suisse for the correct to underwrite a $600 million high-yield bond deal for oil and fuel firm CNX Assets Corp. The unique plan was to underwrite the bond after which promote it to institutional traders later. However volatility within the high-yield bond market earlier this 12 months and turbulent oil costs that made traders cautious of the power sector meant MUFG was unable to assemble sufficient urge for food for the deal on the worth it initially marketed on. To get the bonds off its steadiness sheet, the financial institution ended up promoting the bond at 97 cents on the greenback, a reduction that value MUFG round $15 million in losses.
Regardless of the lengthy street forward to construct its fame as a number one lender within the U.S., MUFG is adamant about rising within the Americas because of the slowdowns in its house market, the place it’s struggling for progress and profitability. The financial institution has determined to shrink the variety of staff working at its Tokyo headquarters by half as a part of its effort to profitability in Japan by decreasing the excessive cost-ratio.
On the U.S. aspect, nevertheless, MUFG just lately added a brand new rent to its tech staff in San Francisco to assist increase its presence within the center market company house. The hiring got here after the financial institution employed two sponsor bankers from Dusteche Banks in an effort to strengthen its monetary sponsor protection and relationship. Davidson stated extra hirings are on the playing cards as MUFG Americas continues to increase.
“MUFG is being MUFG, they’ve all the time invested quite a bit in new markets and we must wait and see what fruits will come out of it,” stated Moriyama.