That, at least, is one conclusion to draw from David Rothnie’s Southpaw on MUFG, which, like Mizuho, is part way through a vigorous expansion into investment banking while also aiming to start punching its weight in securities businesses as well as lending lots of money. Of the pair, Mizuho’s ambitions are perhaps the grander, encompassing a serious tilt at high value pockets of Wall Street strength like technology M&A. But both are pushing their way up the league tables, particularly in the US.
They’ve been here before, of course – one of the striking parts aboutdelving into the past for GlobalCapital’s 30 year anniversary earlier this year was the extent to which Japanese banks bestrode the capital markets of the late 80s, before the financial crisis of the early 1990s and the 'lost decades' that followed.
The competitive landscape in banking, though, is drastically different, with lots of European firms reassessing their global presence, and every investment bank forced to tighten up on deploying balance sheet. Lending lots of money cheaply has always been a way to win business, but perhaps it has never been as valuable as it is now.
Mizuho and MUFG must still labour under the formal split between banking and securities arms, which has led to empire building, fragmentation and poor co-ordination in the past, and hamstrung attempts to convert lending into mandates.
But both banks have sincere, and apparently successful 'one bank' projects underway, which preserve the legal separation but drive institutional co-operation — MUFG’s combination of loan and bond syndicate and DCM, an increasingly popular approach across the Street, is just one example.
Retooling UniCredit
Touching briefly on reporting season, UniCredit, seemingly, had a fantastic quarter, shooting the lights out and sending shares up 7%. Trading commissions and fees did particularly well — the right kind of business in these capital-constrained times — but chief executive Jean-Pierre Mustier is remains conservative in his expectations. The idea seems to be getting UniCredit into the kind of shape where it still make money despite flat yield curves and Basel IV-inflated capital requirements.
HSBC also merits a mention. Shareholders liked the buy-back announcement (though the $2bn chief executive Stuart Gulliver announced is dwarfed by the payouts from the US firms) but the bank also attracted attention for being the first firm to put a figure on its Brexit costs.
Perhaps surprisingly, these weren’t too large. The bank has booked $4m so far in a presumably recurring line called “Costs associated with Britain’s exit from the EU”, but CFO Iain Mackay said that costs of $200m-$300m were likely in the longer term — far smaller than the costs associated with ring-fencing, which were $93m this quarter alone.
$300m for a bank which brings in about $12bn of revenue a quarter is a very manageable number, something to gladden the hearts of the most swivel-eyed Brexiteer, partly because HSBC has a straightforward plan to handle it. It already has a fully-licensed French subsidiary, and will transfer staff and businesses into it as necessary.
Better together
Unlike ring-fencing, Brexit will act mainly on revenues, not costs, as markets fragment, financing goes unraised and hedging unexecuted. Financial centres are more than the sum of their parts. The agglomeration of people isn’t just a way to lower costs and ease hiring. It’s also a way to do more business in aggregate. Measuring the costs of a hard Brexit in the round will involve measuring the trades which never happened — and is unlikely to occupy a separate line in HSBC’s 2019 results.
Two items of regulation stood out for GlobalCapital this week. Jon Hay has explored a neglected side of the MiFID-inspired shake-up of research — what happens to research which is paid for by issuers themselves? Is MiFID’s assault on existing research business models likely to prove a boon for these firms? Do investors care about the conflicts of interest, perceived or otherwise, when issuers pay? And are they worse than the scandals which have plagued investment bank research, and led to the disclosure-laden documents released today?
Also worth a read is GlobalCapital’s follow-up on Europe’s securitization regulation. In what looks like an unforced error of drafting, the European Union seems to be on the verge of banning the securitization of self-certified mortgages — potentially crippling for banks hoping to use securitization to carry on shifting their legacy assets and non-performing books. Sam Kerr spoke to the law’s architect two weeks ago, and now, with the help of senior regulatory sources, he’s trying to figure out what can be done about it.