Write-up of Japan Achievement Awards 2008, day 1

Here are the details of our Japan House Awards for 2008, which were announced in February. A write-up of the Deal Awards will follow tomorrow.

Bank of Tokyo-Mitsubishi UFJ
Our winner is the core retail and commercial banking arm of the Mitsubishi UFJ Financial Group, which is impressive because of how busy it was in the second half of 2008 when most banks were distracted by dealing with heavy losses. First, MUFG bought an $8 billion, 22% stake in Morgan Stanley. When you recall that Morgan Stanley has merged its retail brokerage with Citi's Smith Barney, you can see that MUFG could end up with a platform covering a good chunk of global GDP and with both retail and institutional investor bases.

Next, In its commercial banking operations, MUFG has also pleased analysts by replenishing its capital relatively early. In December 2008, the bank mandated underwriters for the biggest secondary offering of the year, which is set to raise $4.5 billion. While other banks are ducking for cover MUFG is in a position to strenghten it business and extend its franchise. That is an enviable space to occupy.

Daiwa Securities SMBC

Daiwa Securities SMBC has always been a contender for best investment bank, and this year Daiwa deservedly walks off with the top award. The radical happenings of 2008 ended up favouring Daiwa more than they did banks which had embarked on more reckless strategies. Indeed, while Nomura, for example, overstretched itself with the acquisition of Lehman Brothers, Daiwa stayed cool and collected and concentrated on its traditional strengths in equity and bond underwriting, and securitisation. For the year as a whole it ranked second in total ECM underwriting, fourth in all domestic DCM underwriting, top in international bond underwriting, top in the underwriting of asset and mortgage backed securities (ABS/MBS), and third in domestic M&A.

2008 was a year which favoured banks that had husbanded their balance sheets and paid attention to good execution without excessive pressure to generate earnings. The bank has shown the character and the discipline not to be swept up in the vortex of cheap debt and principal investment which has destroyed so many of its rivals. Daiwa is also lucky that it has two strong parents to prop it up in case the markets continue to worsen in 2009.

The next step is for the bank to capitalise on its stable position by benchmarking itself against the top global players. It is a bank which is considered technically very competent. The next step is to devote greater resources to international M&A.

J.P. Morgan
Also the winner in 2007, when Merrill Lynch was a very strong contender, J.P Morgan was an easier choice this time around. The closest contender was Morgan Stanley, which is perhaps surprising since it is best known in Japan for securitisation and real estate (two areas which have all but disappeared in recent months). However, Morgan Stanley was involved in the year's top follow-on for MUFG and the top IPO for Seven Bank. In terms of franchise, though, the difficulties of Morgan Stanley's US operations were a clear negative. It may seem unfair that a bank should be penalised for what is going on with its non-Japan operations, but in good times banks often point to their international network as an asset, so it cuts both ways.

J.P. Morgan ultimately reaps the rewards from staying true to its agency role, having a strong balance sheet and, crucially, not being involved in any terrible transactions. As the league table volumes show (top foreign bank in all ECM, second in follow-ons, top in international bonds, and top in M&A when excluding Morgan Stanley's role in the MUFG deal), J.P. Morgan seems to have become increasingly accepted as a trustworthy and skilful foreign bank which sticks to what it does best -- serving its clients to the best of its ability -- and doesn't let greed force it into taking foolish risks. It also has the stature and confidence to take charge of deals, and impose itself on its clients. In particular, J.P. Morgan seems to be carving out a niche in international bond offerings and international M&A. We like its expertise in the latter especially, since such a complex transactions are a major test of its global competence, and of its standing with its clients. We hope that, considering it is the only bank which has enhanced its reputation in 2008, it will take advantage of its strengths in the coming year and put more space between itself and the opposition than it managed this year.

J.P. Morgan
2008 was a year marked by Japanese firms taking advantages of the strong yen and faltering international competition to reach out overseas and snap up cheap assets, like Takeda Pharmaceuticals' acquisition of Millennium Pharmaceuticals for $8.5 billion and Daichi Sankyo's purchase of India's Ranbaxy for $5.5 billion. J.P. Morgan was part of this trend by advising Eisai on it $3.5 billion takeover of MGI Pharma. It also leveraged its traditional expertise in the steel industry to help a consortium of Japanese firms buy Brazil's Nacional Minerios for $3 billion. Both deals made it into the 10 biggest international M&A deals for the year. On in-bound M&A, J.P. Morgan worked as the advisor for private equity fund Permira when it bought Arysta Life Science. Overall, the US investment bank carried out some important deals, which combined a good strategic fit with solid cross-border coordination.

The biggest deal of the year was the $9 billion investment in Morgan Stanley by Mitsubishi UFJ Financial Group, but as a self-led, distressed deal that was given less credit. It was a deal that may have saved the financial system, at least for a time. But there were so many political considerations around it (both the US and Japanese governments were reportedly involved in making the deal possible) that it became difficult to value on a commercial basis.

Goldman Sachs, with its usual willingness, found itself on the target side in a number of the most important transactions, but given that this year many of the targets were outside Japan, we felt that this did not reflect a strong Japan franchise in the same way as for a bank that was acting on behalf of a Japanese buyer.

Nomura probably has the best resources of any securities house in Japan. But good execution at the micro-level depends on getting the strategy -- and the risk management -- right. With exposure to almost everything that was wrong with 2008 (Madoff, the Icelandic banks, principal investments, subprime mortgages etcetera) it's not clear that Nomura managed that. But Nomura is still the equity underwriter of choice for corporate Japan, as its top league table position in overall ECM. The total volume of deals it was involved in is almost three times as large as its nearest rival, Daiwa Securities SMBC. Nomura also topped the IPO book runner league table and the follow-on league table and was second only to Daiwa in the convertible bond league table. It was also involved in the biggest IPO of the year (Seven Bank) and the biggest follow-on (MUFG). The firm seems to have an unbreakable lock on Japan's retail investor base, meaning it is the best house for domestic distribution. It also has the best overseas distribution of any Japanese house.

For more House Award write-ups, please go to page 2. 


Nomura's brokerage operations are legendary. It is the natural choice both for Japan's retail investors and the country's institutional investors. However, with so many changes afoot in the brokerage space, especially the appearance in Japan of off-exchange electronic share trading platforms and the move towards European and US style best execution standards, Nomura has to move fast to catch up. In early 2009, it showed its commitment to not be left behind by the launch of the electronic trading platform formerly operated by Lehman Brothers. It will be interesting to see how the bank fares in 2009 in a much altered brokerage landscape. But for the time being, it is still number one.

Credit Suisse
This was probably the toughest award to give. Investment banks are returning to a purer agency role in an environment of declining asset prices and this meant there was a fierce competition in this category. After defining what a brokerage is in relatively traditional terms we opted for a player which combines first-class traditional capabilities with an overlay of modern technology, such that it can meet the needs of its institutional investors. Those needs are changing in interesting ways. With prices coming down across the board, performance needs to be enhanced in every way it can and that includes electronic trading to minimise execution cost. Credit Suisse is using technology to guide its clients to the best price on a particular trade, in whichever pool of liquidity it may lurk. That could be the Tokyo Stock Exchange, one of the new platforms that have sprung up, such as Japannext or kabu.com, or its own internal crossing engine. Credit Suisse can also offer investors whatever combination it wants: low price, speed, secrecy and/or minimised market impact. One weakness flagged by its rivals is that Credit Suisse's product offers less FX capability. Given the way the market is evolving, and the increasing popularity of FX as an asset class for retail and institutional investors, that could be a weak point as the competition heats up in 2009.

Daiwa Securities SMBC
Daiwa Securities SMBC, although only fourth by deal volume in the domestic market, ranked as the top firm for arranging deals in the international market. This is a more challenging market, although much smaller: Daiwa received just $1.4 billion of league table credits from four deals. But we believe these deals provide a quite different test of a bank's ability than the relatively commoditised domestic markets, and so Daiwa nabs the award.

Nikko Citigroup
Nikko Citigroup appears to have a lock on this award, although this year it was strongly challenged by Daiwa Securities SMBC. Nikko Citi scored a deal volume of over $5.5 billion, while Daiwa managed $4.8 billion. 2008 was an extraordinary year, and not in a good way: at one point, there was a threat the Samurai market may be shut forever after some of the (supposedly) bluest of blue-chip banks which had tapped the Samurai market suffered terminal stress. Kaupthing Bank, for example, which tapped the Samurai market for the first time last year to great excitement, almost disappeared in the great Icelandic banking crisis. This was a truly horrifying event to yield-hungry but somewhat naïve onshore investors. Fortunately, the whole market was saved by the Westpac Samurai at the beginning of 2009, which was also underwritten by Nikko Citi. The deal was structured in a bullet proof fashion, with an Australian government guarantee. It was the only way to get investors into the market, and it worked. The future of the Samurai market will be interesting to observe; investors will surely have to reduce their blind faith in brand names and carry out more minute due diligence.

Deutsche Bank
Deutsche Bank wins this award with relative ease. It's an important award for Japan, where FX as an investment asset is seeing very strong growth from both retail and institutional investors. Deutsche was named by several retail FX providers as being instrumental in helping to shape and grow a successful FX business model in Japan, with many of the retail FX providers essentially marketing their own platforms, while shovelling the trades to Deutsche Bank. Of course, Deutsche's FX capability is one of the bank's core skills on a worldwide basis, so it's no surprise seeing it at the forefront in Japan. It is also very strong in the traditional, company-oriented FX business in terms of hedging, swaps and so on.

Daiwa Securities SMBC
Last year was a year of two halves for securitisation. Foreign houses have had an extraordinary impact on the Japanese real estate market, thanks in large part to their securitisation techniques. In fact, some analysts attribute any vigour in the property market to foreign banks! But local banks are catching up in a big way, and Daiwa's performance last year proves it. Volumes were down, but Daiwa, with a relatively meagre $3.8 billion, managed to edge past Nikko Citi on $3.3 billion. Volume-wise the market is dominated by mortgage-backed issuance from the Japan Housing Finance Agency. But there were also some exciting commercial mortgage-backed security (CMBS) deals, especially the last minute sale of Shinsei Bank Headquarters -- a transaction which gave a welcome boost to Shinsei's bottom line at its earnings announcement a few days later.

BNP Paribas
BNP enjoyed its best year for sales of structured products in Japan during 2008, in marked contrast to what happened in the offshore private banking markets of Hong Kong and Singapore, where volumes collapsed as highly leveraged investors lost their shirts and quit the market in droves. In Japan, it was a different story. Volumes tend to be stickier here, not least because investors are far more conservative and, as a result, there are plenty who are still willing and able to enter the market when levels fall. Indeed, BNP printed one of its biggest deals of the year in December. Commercial performance is only one side of the coin, however. Many providers enjoyed good sales in 2008 after a poor year in 2007, only to suffer huge losses on the risk management side. The trick in 2008 was to combine good sales with effective hedges or defensive positions, and during the course of a very difficult year BNP demonstrated the finest balance on the street.

Sumitomo Mitsui Financial Group
This award recognises issuers which are frequent and skilful users of the domestic and international debt markets. Policy banks may be candidates, but their rock solid government guarantees makes them, in our eyes, less deserving than fully private entities. The winner last year was SMFG, which raised over $14 billion via 18 deals, just ahead of Mizuho Financial Group and almost twice as much as the first non-bank issuer, Tokyo Electric Power. SMFG's use of the capital markets will have helped the firm gather experience which could be vital as companies seek to bolster their capital bases going forward.

HSBC is a trade power house worldwide, and Japan is no exception -- although its operations are noticeably smaller in Japan than elsewhere in Asia in terms of personnel. Indeed, while Japan is an export superpower, much of its trade with Europe and the US now comes from its offshore manufacturing centres, in effect bypassing mainland Japan. However, HSBC plays an important role in guaranteeing the letters of credit from companies in the West that are used to pay Japanese exporters -- and increasingly also from firms in more dangerous countries, such as Pakistan and Bangladesh, as Japanese exporters strive to diversify their markets. The ability to gauge country and other risk is a core banking function and HSBC possesses the right experience of foreign markets to make a success of its operations in Japan. Financing the supply chain is also crucial, and once again that means the award has to go to a bank with the balance sheet strength to provide funding. HSBC also has the advantage of not being bound by US regulations, which have become stricter in the wake of anti-terrorism measures. Finally, HSBC does not outsource its processing, which reassures the more conservative Japanese businessmen. HSBC is rolling out premier branches across the country, and it will be interesting to see if a more visible presence will help boost its corporate business even further.

J.P. Morgan
J.P. Morgan wins this award for the second year in a row. The bank has one of the deepest franchises in the market with a 42% market share, not least thanks to its remarkable role in operating Japan's Tokyo US dollar clearing system for more than 20 years. It is also the number one clearer in the world. Notably, J.P. Morgan kept the system running when unprecedented volumes were pouring through it in the wake of last year's market turbulence. This capacity makes J.P. Morgan an important partner for Japanese banks, and also gives it the opportunity to penetrate the international operations of Japanese companies. This is one award J.P. Morgan seems to have a firm grip on.

Nagashima Ohno & Tsunematsu
Nagashima wins for the second time in a row and all the qualities pointed out in last year's awards write-up have simply gotten better. The law firm is young (founded in 2000) and has been set up specifically to deal with the new issues which Japanese firms are facing in a globalised world. It applies fresh thinking and absorbs lawyers with a more modern take on business. The firm is also based on modern lines, with the ability to form teams of specialists at short notice to tackle large and complex cases. It is also very able to work closely with foreign law firms.

The list of deals Linklaters has worked on is impressive, especially within the areas of Samurai bonds, securitisation and convertible bonds. Linklaters also wins the award for the second year running. The firm covers private equity, securitisation, mergers and acquisitions and leverage finance. It worked on a number of the key deals in Japan last year, including the Wal-Mart Samurai and the convertible bonds for Yamada Denki and Casio Computer. Within derivatives and structured products, the firm worked on the Permira acquisition of ArystaLifesience to grant security interests over movable assets. It is also acting as representative counsel to Bank of America in Japan with regard to its merger with Merrill Lynch. Linklaters continues to set the standard for foreign law firms in Japan.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media