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Cash rich lenders bankroll Japan Inc's shopping spree

Flush with cash from the Bank of Japan (Tokyo Stock Exchange: 8301.T-JP)‘s (BOJ) stimulus effort, lenders won’t be put off from financing Japan Inc’s habit of paying too much for overseas acquisitions, even as a weaker yen makes those deals more expensive, analysts say.

“The banks need someone to lend to and M&A (merger and acquisition) financing is one of the few growth areas for them,” said Barclays (London Stock Exchange: BARC-GB) bank analyst Shinichi Tamura. As long as a company “looks creditworthy enough to pay back the loan, the banks will be happy to back the deal.”

Deal volumes sank to a twelve-year low in 2014, but a recent flurry of M&A deals suggests Japanese companies are ready to shop overseas again.

Last week, Japan Post made a $5.12 billion bid for Australia’s Toll Holdings (ASX: TOL-AU). On Monday, chemicals company Asahi Kasei (Tokyo Stock Exchange: 3407.T-JP) announced it would buy U.S.-based Polypore (NYSE: PPO)‘s energy storage business for $2.2 billion. On Tuesday, Hitachi (Tokyo Stock Exchange: 6501.T-JP) announced it would buy Finmeccanica (Milan Stock Exchange: FNC-IT)‘s transportation operations for 800 million euros ($909 million).

Whether the companies pay too much for overseas acquisitions is not the banks’ problem, according to Japan Macro Advisors chief economist Takuji Okubo: “That’s the company’s problem – the banks only care about the creditworthiness of the acquirer’s parent company.”

Desperate for borrowers

Japanese banks have faced a predicament for years: despite low interest rates, they can’t find enough borrowers.

The situation took a turn for the worse after the BOJ launched an unprecedented asset purchase program in April 2013. The program involves buying government bonds – the main source of yield income in the past for banks. Yields have trended ever lower but failed to stimulate any new demand for loans.

As a result, margins on bank loans in Japan continue to skim record lows. For example, the lending rate on domestic loans at Mitsubishi UFJ Financial Group (Tokyo Stock Exchange: 8306.T-JP), one of the country’s biggest banks, slipped to 1.10 percent in the last three months of 2014, from around 1.3 percent in early 2013, before the BOJ started its massive asset purchase program.

Read More Is Japan Post overpaying for Toll?

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Flush with cash from the Bank of Japan’s stimulus effort, lenders will keep on financing Japan I …

That makes shorter M&A financing package loans that carry higher risk premiums and yields more attractive for banks, said Barclays’ Tamura. A typical loan will be rolled over into a three- to five-year syndicated loan, he said.

“The banks are desperate and are willing to take on the risks,” said Japan Macro Advisors’ Okubo.

But banks aren’t overly concerned about the risk factor.

“Private sector banks believe the loans carry implicit government guarantees” because public sector banks like Japan Bank for International Cooperation lead the M&A financing consortiums, Okubo said.

Race against time

Japanese companies may not need to worry about financing their overseas shopping sprees, but they should worry about the potential for further yen weakness, analysts said.

Prime Minister Shinzo Abe’s economic policies, dubbed Abenomics, and the BOJ’s quantitative easing efforts have weakened the yen by over 40 percent since Abe returned to power in December 2012. Many analysts expect the yen to weaken further.

“It makes sense for companies to be pre-emptive and do deals before the yen weakens anymore,” said BNP Paribas chief credit analyst Mana Nakazora.

Given strong cash balance sheets and a shrinking domestic market, that appears likely, according to PwC Corporate Finance director Gregory Bournet. He expects the number of outbound M&A deals to rise to 20 percent of all deals in fiscal 2015 from 10 percent in 2014.

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Megabanks’ $800 Billion Cash Pile Shows Abe's Challenging Task

Prime Minister Shinzo Abe has succeeded in wrestling down the yen and snapping a 15-year deflationary spiral. The challenge of spurring lending by the country’s cash-hoarding megabanks remains.

The nation’s three largest lenders increased their cash and deposits with other financial institutions 5.7 percent in the quarter to June to 82 trillion yen ($800 billion) from the previous three-month period, earnings data show. New loans by Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. fell 329 billion yen to 239.1 trillion yen.

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Abe needs to spur lending after the world’s third-largest economy shrank at an annualized 6.8 percent in the second quarter due to an April sales-tax increase aimed at curbing the world’s biggest debt burden. While the banks can no longer park excess cash in sovereign debt amid expectations for higher yields, falling loan rates have narrowed the spread over deposit payments to levels that discourage extending credit, according to Moody’s Investors Service.

“The big three are at a turning point,” said Graeme Knowd, an associate managing director who oversees corporate and financial institutions at Moody’s in Tokyo, in an interview. “They haven’t really taken credit risk for a long time. If Abenomics works, they need to reorient the business model.”

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Excess Cash

Deposits at Japanese financial institutions exceeded loans by 192.5 trillion yen last month, according to Bank of Japan data. The surplus reached a record high 194.2 trillion yen a month earlier.

Cash and funds held at lenders soared 47.4 trillion yen since March 2013, a month before the central bank introduced its stimulus program. Reserves at the BOJ in excess of the minimum requirement, which pay a 0.1 percent interest, rose 82.3 trillion yen in the period to 134.9 trillion yen as of Aug. 12.

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Abe’s policies and the BOJ’s about 7 trillion yen in monthly sovereign bond buying succeeded in depreciating the yen more than 18 percent last year. The infusion also reduced borrowing costs in the country, forcing banks to charge lower interest.

New loan rates dropped to 0.779 percent in May, the least in BOJ data going back to 1993, before rising to 0.905 percent in June. The spread on what Mitsubishi UFJ charges for domestic loans over deposit interest rates fell to 0.96 percent in the first quarter, a record low.

Risk Averse

“Japan’s banking sector is a little bit unusual,” said David Marshall, a credit analyst at CreditSights Inc. in Singapore. “They’re more risk averse, only willing to take on what they see as the good quality clients and they have been reluctant to lend to weaker companies.”

While some companies in Japan are spending more on capital investments, their cash levels remain high and so it will take time before demand for bank loans increases, Tomoyuki Narita, a spokesman for Sumitomo Mitsui said in an e-mail. Mitsubishi UFJ’s spokesman Takafumi Miyamoto said the bank is actively seeking to engage borrowers.

“Although we continue to make efforts to increase lending, a real rebound in funding demand will take a little bit more time,” Mizuho spokeswoman Masako Shiono said in an e-mailed response to questions. “We are hopeful for a recovery in the fiscal second half starting in October.”

Lending in Japan increased to 414.7 trillion yen in July, the highest level since March 2003, according to data compiled by Bloomberg. The additional income from new loans still fell short of what the banks made on bonds and equities.

Bonds and Stocks

Sumitomo Mitsui increased interest income from loans by 7 billion yen in the most recent quarter from a year earlier, according to calculations by CreditSights. That compares with a 32.7 billion yen gain on equities and a 12 billion yen net gain on bonds.

Japan’s benchmark 10-year bonds yielded 0.5 percent as of 9:29 a.m. in Tokyo today, down 23.5 basis points this year. The Topix stock index has fallen 2.7 percent since Dec. 31, after a 52 percent gain in 2013.

Banks have also turned to more lucrative overseas markets to escape low rates at home. Mitsubishi UFJ boosted loans abroad by 8.4 trillion yen since March 2013, compared with a 1.3 trillion yen increase in corporate lending at home.

“The banks are basically on the sidelines until it becomes clearer what the outcome is going to be” of Abe’s policies, CreditSights’ Marshall said.

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Sandy Hendry at shendry@bloomberg.net Pavel Alpeyev

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Japan lawmaker resigns over $8 mn loan scandal

Tokyo (AFP) – A senior Japanese politician has announced he is resigning as his party’s leader, despite insisting that he spent an undeclared $8 million loan not on politics but on personal items — including an ornamental rake.

Yoshimi Watanabe, the latest lawmaker to be felled by a cash scandal, said he was stepping down from the helm of the small but influential Your Party to try to contain the fallout from the incident.

Watanabe accepted 800 million yen ($8 million) from the chairman of a huge cosmetics company. Japanese law requires that all political donations be made public.

Watanabe said earlier the money had been a personal loan that he had spent on “miscellaneous items” including a decorative “kumade” — a bamboo rake believed to confer luck on its holder.

Announcing his resignation Monday, Watanabe said again he had done nothing wrong and insisted the cash had been unconnected to his electoral ambitions.

“Although there is no legal problem at all, it is true that I caused trouble to the party. I bear all the responsibility for this,” the 62-year-old politician told reporters, adding he would stay in parliament as a lawmaker.

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Yoshimi Watanabe places a wet towel against his forehead at a Tokyo hotel on July 11, 2010 as his pa …

Your Party plans to hold an election to choose his successor this week, Jiji Press reported, while prosecutors are reportedly looking into the cash transfer to see if charges should be laid.

Watanabe’s fall could be a blow to Prime Minister Shinzo Abe’s plans to remake Japan’s Self Defense Forces as a modern military.

The conservative premier has spoken repeatedly of his desire to revise the US-imposed pacifist constitution and is pushing to broaden the role of the military to permit “collective self-defence”, allowing Japanese troops to come to the aid of allies.

Under Watanabe, Your Party has expressed support for the hawkish agenda, offering at least a veneer of plurality to Abe’s drive while his junior coalition partner, the secular Buddhist New Komeito, has proved reluctant.

The furore surrounding Watanabe is the latest in a long line of cash scandals that surface every few months in Japan, as one high-profile lawmaker after another gets skewered over “loans” from powerful businessmen — bolstering the public impression that influence is for sale.

Politics & GovernmentYoshimi Watanabepersonal loanJapan […]

BOJ holds fire despite soft GDP, expands loan programs

* BOJ keeps base money target intact as widely expected * Maintains view Japan’s economy recovering moderately * BOJ expands special loan facilities, extends deadline * Kuroda says loan schemes will enhance QE transmission By Leika Kihara and Stanley White TOKYO, Feb 18 (Reuters) – The Bank of Japan maintained its expansionary monetary policy on Tuesday and extended special loan programs to help buoy economic growth, signalling its resolve to keep the positive mood generated by premier Shinzo Abe’s reflationary policies from fading.

The central bank reiterated its upbeat view on the economy, unfazed by recent signs of slowing growth and suggesting that any additional stimulus will be some time away.

But the Nikkei stock average surged 3.1 percent and the yen sagged on its decision to extend special loan facilities by one year and double the size of funds available to banks.

BOJ Governor Haruhiko Kuroda said the expansion was aimed at enhancing the transmission mechanism of quantitative easing by encouraging banks to boost lending instead of sitting on piles of cash.

“We have an engine with big horsepower, so it makes sense to have stronger tires,” he told reporters after the decision.

While some investors viewed the loan program expansion as a policy signal the BOJ may take a more accommodative stance if necessary, Masashi Murata, senior currency strategist at Brown Brothers Harriman, cautioned that the reaction in the Japanese government bond market suggested this was not the case.

“Bank shares drove the Nikkei, which drove the yen, but JGBs did not react much,” he said.

As widely expected, the BOJ on Tuesday maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($589-$687 billion).

The central bank also stuck to its assessment that Japan is recovering moderately, a sign it remains confident the world’s third-largest economy can weather the pain from a sales tax increase in April without additional stimulus.

“The BOJ already expects the economy to contract immediately after the sales tax hike, so this cannot be the basis for additional easing,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo.

BULLISH TONE INTACT? The BOJ has stood pat on policy since launching an intense burst of stimulus last April, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.

Monday’s weaker-than-expected fourth-quarter GDP has dashed hopes that a rush in household spending ahead of the April tax hike would cushion the pain from sluggish export growth.

While the BOJ is in no mood to act immediately, market pressure for further stimulus may heighten in coming months if there is more evidence that personal consumption is losing momentum, some analysts say.

Kuroda, however, remained sanguine, saying he saw no threat to the bank’s rosy projections with overseas demand seen picking up and rising income underpinning consumption.

“If risks materialise, we will not hesitate adjusting policy, but for now Japan’s economy is on track and moving in line with our forecasts,” he said.

As expected, the BOJ extended three special loan facilities by one year from their scheduled expiry in March.

Of the three, it doubled funds available to banks under two facilities — one that encourages banks to funnel money to industries with growth potential and another that offers cheap funds to banks that boost lending. Both give banks access to funds for four years at a fixed rate of 0.1 percent.

But analysts doubt how much the expansion will do to boost lending, which has increased only moderately despite the BOJ’s aggressive stimulus on sluggish corporate demand for funds.

Of the combined 21.5 trillion yen that had already been set aside under the three facilities, less than 9 trillion yen has been tapped so far.

Kuroda acknowledged that the BOJ was counting somewhat on the psychological effect by boosting the lending facilities.

“We attempt to strengthen the incentive for banks to tap these facilities,” he said. “We’ve included a strong message of support for these programs.”

FinanceBudget, Tax & EconomyBOJ […]

Japan's top three banks poised to benefit from spurt in domestic loan growth

By Taiga Uranaka

TOKYO (Reuters) – Japan’s biggest banks, flush with cash from a year-long stock market rally, are poised to benefit this year from a spurt in loan growth at home fuelled by the economic stimulus measures of Prime Minister Shinzo Abe.

Mitsubishi UFJ Financial Group Inc <8306.T>, Mizuho Financial Group Inc <8411.T> and Mitsui Sumitomo Financial Group Inc <8316.T> all booked increased lending in the latest quarter, in a business that contracted before “Abenomics” kicked in at the beginning of 2013.

Domestic loans at major Japanese banks grew 2 percent in December for the quickest annual pace since 2009 and surpassed 200 trillion yen for first time in over three years, central bank data show.

Lending is likely to pick up as around a quarter of Japanese companies, according to a Reuters poll conducted last month, plan to increase capital expenditure in the financial year beginning in April.

In further positive signs, the central bank’s index of business sentiment reached its highest in six years in the latest quarter, and spending on machinery hit a five-year high.

Lending growth so far has been driven by funding for large-scale acquisitions. MUFG is part-financing drinks maker Suntory Holdings Ltd’s $13.6 billion purchase of U.S. whiskey maker Beam Inc .

Other primary customers include utilities such as Tokyo Electric Power Co <9501.T> who want funds to buy fossil fuels, as nuclear plants are closed while the nation debates their safety.

The larger lending volumes may help banks buoy earnings as interest rates fall, with banks undercutting each other to win the increased custom.

The average interest rate of Japanese banks on domestic loans was 0.863 percent in December, a shade above the 0.821 percent of August which was the lowest since the central bank began compiling the information at the end of 1993.

“I don’t expect to see an improvement in loan interest margins in the near future,” said Naoko Nemoto, managing director at Standard & Poor’s Ratings Japan.

ALTERNATIVE INCOME

Banks spent the majority of 2013 booking significant gains from stocks, as share prices reached multi-year highs lifting banks’ income from stock trading and brokerage commission.

Overall net profit at MUFG increased 47.5 percent to 785.4 billion yen in April-December.

Net interest income, or profit from interest on loans, grew to 1.39 trillion yen in April-December, from 1.31 trillion yen a year earlier.

The domestic corporate loan balance of MUFG grew 500 billion yen, or 1.23 percent, over three months to 41 trillion yen at December-end.

The earnings mirrored those of Mizuho and SMFG, where 9-month profit rose 43.7 percent and 28 percent respectively.

At Mizuho, domestic loans reached 55.8 trillion yen at December-end from 55 trillion three months earlier.

Domestic loans edged up to 48.5 trillion yen at SMFG from 47.8 trillion yen during the same period.

(Reporting by Taiga Uranaka; Editing by Christopher Cushing)

FinanceMizuho Financial Group IncJapan […]

OKI Delivers ATM-Recycler G7 Cash -Recycling ATM to Bank Central Asia in Indonesia

TOKYO–(BUSINESS WIRE)–

OKI (TOKYO:6703) today announced the delivery of cash-recycling ATMs, ATM-Recycler G7, to PT Bank Central Asia Tbk (hereinafter referred to as BCA), the largest private bank in Indonesia. Scheduled to start installations August 2013, these deliveries follow ATM-Recycler G7 installations in Russia announced last year, and will mark OKI’s first delivery of its cash-recycling ATM in Southeast Asia. Capitalizing on recent achievements in the overseas market, OKI plans to accelerate global sales development of its ATMs and aims for 40% market share in the global ATM market, namely in emerging markets, where continuing growth is expected.

Economic growth continues in Indonesia and installation of ATMs and CDs (cash dispensers) reached 50,000 units in 2011, the largest in South East Asia. The number is expected to continue expanding to 80,000 units by 2015 following the economic growth. Capitalizing on delivery to BCA, OKI will seek to expand sales to other financial institutions and in turn, increase market share in the Southeast Asian ATM market.

“BCA currently operates approximately 10,000 units of ATMs and CDs. Committed to utmost customer satisfaction, we are enhancing services through various channels including the Internet and mobile,” says Armand W. Hartono, Managing Director of BCA. “We are proactively introducing automated equipment and innovative technologies; as part of these efforts, we ran a pilot project of OKI’s ATM-Recycler G7 from May to December 2012. We were pleased with its high-reliability and future expandability to recycling functions, leading to installation of these units.”

“OKI’s ATM-Recycler G7, available since 2010 to the global market, has gained strong track records, for instance, in China where its has achieved top share of cash-recycling ATMs,” says Shinya Kamagami, Senior Vice President and General Manager of OKI’s Systems Hardware Business Division. “A single ATM-Recycler G7 handles 128 banknote denominations of multiple currencies and uses deposited banknotes for withdrawals, leveraging its cash-recycling function to reduce banknote management and operational costs compared to cash dispensers and non-cash-recycling ATMs.”

About Bank Central Asia (BCA)

Founded in 1955, Bank Central Asia operates in most financial markets such as retail, corporate loans, credit cards and financing. It is the largest private bank in Indonesia in terms of total assets, equity capital, number of customers and loan assets. The bank has a retail customer base of 10 million and holds 944 footholds within and outside Indonesia (including Singapore and Hong Kong).

About OKI Electric Industry (OKI)

Founded in 1881, OKI Electric Industry is Japan’s leading telecommunications manufacturer. Headquartered in Tokyo, Japan, OKI provides top-quality products, technologies, and solutions to customers through its info-telecom systems and printer operations. Its various business divisions function synergistically to bring to market exciting new products and technologies that meet a wide range of customer needs in various sectors. Visit OKI’s global website at http://www.oki.com/.

Notes:

The names of the companies and products mentioned in this document are the trademarks or registered trademarks of the respective companies and organizations.

Contact:

OKI Electric Industry

Sonomi Kitamura, +81-3-3501-3835

Public Relations Division

press@oki.com […]

BOJ on campaign trail to promote cheap loan scheme

TOKYO (Reuters) – The Bank of Japan, gearing up for a new leadership expected to pump cash into the economy more forcefully, has conducted a rare, nationwide campaign to promote a cheap-loan scheme for commercial banks, central bank officials said on Tuesday.

The break from tradition underscores the central bank’s struggle to get banks to boost lending, which it hopes will help revive the economy, rather than invest most of their cash-on-hand in low-risk Japanese government bonds.

Central bank officials toured 10 major Japanese cities, from the snowy northernmost town of Sapporo to the western business hub of Osaka, from January 30 to February 25 to promote the scheme to regional banks and encourage them to lend more to businesses, the officials said.

“The response was good overall,” said one of the BOJ officials, who was on the campaign trail. The officials declined to be identified because they are not authorised to speak to the media.

The central bank unveiled the loan scheme in October last year, offering unlimited amounts of cheap, long-term funds upon request by commercial banks. The scheme kicks off in June and the BOJ hopes to offer at least 15 trillion yen (105 billion pounds) in total by its expiry in March 2014.

How much each bank can borrow from the BOJ will depend on how quickly they ramp up lending to companies, a rule aimed at encouraging borrowing. The BOJ will lend at 0.1 percent.

The loan scheme is different from the BOJ’s main monetary easing tool, an asset-buying and lending programme, under which it pumps money into the economy via asset purchases and market operations.

The BOJ has several loan programmes aimed at jump-starting the fragile economy and end nearly two decades of deflation. But it rarely conducts a nationwide tour to brief on the launch.

Under heat from Prime Minister Shinzo Abe, the BOJ delivered its fourth shot of monetary stimulus in five months in January, pledging to pump 101 trillion yen this year into the economy and make open-ended asset purchases from next year.

The BOJ is expected to continue expanding monetary stimulus under a new leadership that will take over next month, with Abe set to nominate a vocal advocate of bolder policies.

Despite abundant cash available for lending, it has yet to make its way to the broader economy because a murky economic outlook makes companies hesitant of borrow for investment.

Banks are also reluctant to take on risk by lending to up-and-starting, small firms.

Bank lending rose just 1.3 percent in January from a year earlier even as bank deposits rose an annual 3.6 percent and cash circulating in the economy grew 3.1 percent.

(Editing by Neil Fullick)

[…]

Mexico's Banorte Borrows $800 Million to Raise Bank's Capital

Mexican financial group Banorte SAB (GFNORTE.MX, GBOOY) said Friday that its banking unit has contracted an $800 million syndicated loan to raise its capitalization level following a cash disbursement for its recent pension-fund acquisition.

Afore XXI Banorte, the bank’s pension-fund joint venture with Mexico’s social-security institute, closed the purchase of Banco Bilbao Vizcaya Argentaria SA’s (BBVA, BBVA.MC) Mexican pension business in January. Banorte used existing capital to cover its $800 million portion of the deal.

Banorte, which is Mexico’s third-largest bank lender, said that cash outlay pushed its capitalization level to 13.3% as of the end of January, compared with 15.1% prior to the payment. While a 13.3% capitalization level puts Banorte still within regulatory requirements, the bank said it prefers to maintain higher levels of capital to support anticipated business growth.

In addition, Afore XXI Banorte declared 950 million pesos ($75 million) in dividends this month, Banorte said, and a decrease in capital of MXN2 billion. As half owner of the pension fund, Banorte will receive MXN1.48 billion from those decisions.

Between the syndicated loan, dividend payment and lower capital at the pension fund, Banorte figures its capitalization level rose to 16.3%.

The banks that participated in the syndicated loan were Morgan Stanley, Merrill Lynch, Pierce, Fenner & Smith, J.P. Morgan and Bank of Tokyo-Mitsubishi. The loan has a life of 364 days, with interest at the three-month Libor plus 0.80%. Banorte plans to repay the loan using dividends from its various business units.

Write to Amy Guthrie at amy.guthrie@dowjones.com

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Mitsui Seeks Copper Acquisitions With Record $17 Billion Cash: Commodities

Mitsui & Co. (8031) , holding a record $17 billion in cash, wants to buy mining stakes and expand operations to triple copper output and more than double coal production, easing its reliance on iron ore sales. […]