Restructuring, trends and growth

  • 14 Nov 2001
Email a colleague
Request a PDF

Mark B Johnson interviewed some of the most prominent investment bankers working in Japan to get their views on the state of the markets, namely:

Jesse Bhattal
CEO, Lehman Brothers, Asia

Mark Chiba
president and CEO, co-head of corporate finance division, UBS Warburg (Japan)

John Howland-Jackson
CEO and branch manager, ING Baring Securities (Japan)

Shinji Oyama
co-head of investment banking, Nikko Salomon Smith Barney

Thierry Porté
managing director and president, Morgan Stanley Japan

Gary Talarico
managing director and head of global corporate finance Japan, Deutsche Bank, Tokyo branch

Hiromichi Tsubouchi
managing director and head of investment banking (Tokyo), JP Morgan Securities Asia

Hiromi Yamaji
head of global investment banking, Nomura Securities


HOW HAVE NEW MARK TO MARKET RULES AFFECTED THE PACE OF DISPOSAL OF CROSS-SHAREHOLDINGS?

Deutsche Bank: There is clearly more pressure on companies to dispose of their cross-shareholdings and we have seen an increase in both interest and activity. At the same time, however, the weak stock market has made it difficult for sellers to realise their price targets and many have been holding back hoping for better market conditions. I think that many sellers were convinced that early next year would be a better time to sell and that they would have a better market to sell into before the end of the Japanese fiscal year in March next year. Recent events, however, may have changed those views. The basic factors limiting these sales are the weak market and the large size of many of these blocks. The other limiting factor is the continued sensitivity to the underlying relationships of corporate holders with the companies they own.

In fact, it is worth noting that, before even calling a broker, sellers first call the company whose shares they are about to sell. The company whose shares are being sold often direct the seller to their preferred brokers.

Morgan Stanley: Cross-shareholdings have been undergoing an unwinding process that started well before these rules and is continuing. While the rules have been helpful from a disclosure standpoint, the underlying motivation for unwinding these positions remains related to restructuring and improving returns on equity.

Nomura: The introduction of new mark to market rules helped to increase the pace of unwinding cross-holdings, as many companies, especially banks, have to offset their losses in the current dismal market. On the other hand, companies have to crystalise losses if they sell cross-holding shares under the current market.

The introduction of new mark to market rules is not necessarily a prime reason for speeding up the disposal, but plays an important role along with market conditions, share prices, companies' financial margins and investors' needs. It is easy to imagine that many firms may face difficulties in keeping large cross-shareholdings, as they have to take into account the price fluctuation of securities on their books.

JP Morgan: External pressure such as changing accounting rules is a useful way to pressure Japan into making structural changes. More fundamentally, Japanese companies, including banks, now appreciate the fundamental risk associated with an unbalanced portfolio heavily dependent on equity assets.

Lehman Brothers: The new mark to market rules, while only being implemented in September, have been anticipated by the market and companies for quite some time. The pace of cross-shareholding unwinding actually picked up last year in anticipation of these accounting changes. Disposals have remained steady through the first nine months of this year, with the sagging market and the potential for a government banking rescue package the most likely reasons for the lack of any acceleration in the pace of disposals.

Corporations by and large seem to be taking a passive role in the unwinding of their shares. Following Toyota's facilitation of a $1bn sale by its financial institution shareholders in late 1999, the managed sale approach has only surfaced again in any significant way with the Fuji TV transaction earlier this year.

Nikko Salomon Smith Barney: There is little doubt that the onset of mark to market accounting has caused corporate clients to focus on their balance sheet and the volatility that can be caused therein as a result of the change in accounting regulations. It is difficult to quantify this effect in isolation from other factors that were already influencing the disposals. In fact, we have noticed that as the market has continued to fall, there may have even been a slowdown in this activity.

ING: The mark to market rules were introduced from the accounting period beginning April 2001 and, therefore, the September 2001 closing was the first relevant date for this change. There has not been a rush for the exit during this recent period by owners of major cross-shareholdings, since the impending change was well flagged in advance and disposals have been occurring over a longer period. The weakness of the market has also not encouraged sellers. The new rules could perhaps be characterised as an ever present depressant rather than the sole cause of the recent slide.

UBS Warburg: They are accelerating disposals because of the financial pressure being created through downward marks. Only where a holder really believes that a shareholding will increase in value will it hold on.


WHAT ARE THE MAIN METHODS THAT THE SELLERS OF CROSS-SHAREHOLDINGS SHOULD EMPLOY TO SELL THEIR STOCK, GIVEN THE FRAGILITY OF THE JAPAN EQUITY MARKET?

Nomura: One key method is to make a global stock offering, because domestic investors are reluctant to increase their holdings in Japan. Through global offerings, issuers can present their business strategies and strengths to foreign investors, and extensive marketing efforts may possibly attract new investments. There are still quite a few candidates that have clear growth visions, firm earnings estimates, and relatively low foreign shareholder ratios.

Governmental support may be another key under these market conditions. As the Liberal Democratic Party proposes, government-established institutions may be able to ease the selling pressure. Tax policy changes can also be helpful for new investments from individual savings, most of which still remain under historically low interest rates.

Finding strategic shareholders can also be an option for companies. Through cross-border M&A, some companies are looking for new business partners. Strategic shareholdings will not affect the market directly and may be welcomed by investors if such shareholdings promote new growth stories.

Treasury stock buybacks are another way to dispose of such cross-shareholdings. Most companies are finding it difficult to locate new operational investments and thereby to expand their business. For shareholders, it makes much more sense to redeem outstanding shares or to buy back as treasury stock, leading to a higher return on equity and therefore share prices.

Lehman Brothers: The most common method for selling cross-shareholdings has been via block trade into the domestic market. However, this technique puts heavy pressure on the equity market. The perception of a continuous market overhang, the lack of organisation among potential sellers and the lack of any marketing programme combine over time to put a ceiling on share price appreciation. Although marginally more expensive and time consuming, a managed sale, like the Toyota ADR sale in 1999, has significant benefits for the seller, the company whose shares are being sold, and the overall market. Share overhang is tangibly reduced through a larger deal size, the disposal of shares is orderly and understood by the market, and the company's investor base will most likely broaden through an active international management roadshow.

Morgan Stanley: This is really a case-by-case decision depending on the company involved, the share price, freefloat and liquidity, and the amount of shares that need to be sold. Methods undertaken have ranged from dribble out sales into the market, block trades, underwritten secondary offerings and, on occasion, selling into corporate stock repurchase programmes.

UBS Warburg: The key is to make use of a diverse array of divestment methods, so as to be opportunistic and to hit the most responsive investor base at any given time. In addition to traditional block trades and secondary market dribble outs of stock, the accelerated placement has now arrived. Our Lawson ¥60bn accelerated placement showed that a large selldown in a declining market can be a great success if executed correctly. In addition, set piece global offerings, exchangeable bonds, and other hybrid or structured instruments will be used. Flexibility and judgment on how best to harmonise the vendor's requirements with market realities are essential.

Nikko Salomon Smith Barney: There are a variety of methods in the corporate treasurer's arsenal to dispose of these holdings. We find that the method chosen will ultimately be suited to a particular client's needs and circumstances. However, the broad principles can be summarised as block trades, offerings and derivatives.

JP Morgan: I guess this is a leading question. I think this comes back to the first question. The Japanese equity market or Japanese equity pricing needs to be rationalised. The market must be confident of the price. To do this, disclosure needs to be improved. Earnings fundamentals must also improve. Do both and you will broaden the investor base. To broaden the investor base, and improve investor sentiment, corporations must become more transparent, and have a better understanding of shareholder value.

Deutsche Bank: As an exit strategy, large straight equity sales are tough right now not only because of the weak market but also because of the large size of some of these blocks. They can get done, but price is an issue. Also there are limits on size in the current market environment.

Japanese companies need to consider various methods in addition to discrete block trades to finally exit their holdings. This should include co-operating with other sellers and the company itself to launch global secondary offerings with full roadshows. Japanese companies also need to consider new types of securities such as exchangeable bonds, which tap into a completely different investor base and do not need to involve the participation of the company whose stock is being sold.

There are many different structures that can be used, including simple exchangeables that are like convertibles, mandatory exchangeables, enhanced mandatory exchangeables, and synthetic exchangeables. There are also numerous hedging strategies that should be employed to reduce the risk to the holders' capital bases.

Deutsche Bank itself has faced the same issue and has used numerous methods to liquidate or hedge its large industrial holdings in Germany. When you take into account the size of these holdings, it is hard to believe that straight equity sales alone are going to be enough.

ING: There is unfortunately no magic solution, particularly while the stock market is hovering around the 10,000 level. With investor interest being highly selective, placements need to be demand driven and there is little current alternative to the block trade, or variations on the same theme such as the accelerated global tender used in some recent cases. Exchangeable bonds could theoretically provide another avenue but they carry tax problems in Japan and do not represent certainty for the issuer, unless mandatory, which would not be viable in the prevailing investment climate. The biggest overhang of cross-shareholdings remains with Japanese banks for which the only practical exit may be via the proposed government organised share purchasing entity.


ARE STOCK BUYBACKS TAKING PLACE WITH SUFFICIENT ENTHUSIASM IN JAPAN, OR IS CORPORATE JAPAN SENDING AN IMPLICIT MESSAGE THAT IT DOES NOT SEE ENOUGH VALUE IN ITS OWN SHARES?

Nomura: Share buybacks have gained in popularity in recent years as an alternative method of returning excess cash to shareholders as well as absorbing their own shares resulting from the disposal of cross-shareholdings.

Since the amendment to the commercial code in 1994, the number of companies that have repurchased their shares has been increasing - there were just two in 1995 and 465 in 2000. Almost half of these companies have carried out repurchases more than twice and a few have been doing so repeatedly on a sizeable scale as regular financial activities. Such companies include Toyota and Matsushita Electric Works.

However, most of the repurchases are not large enough to send very positive signals to investors or to drastically alter the capital structure, as total repurchases account for less than 3% of all the outstanding shares. This is surprising because management teams often state their stocks are undervalued.

The reasons for the slow progress are the prolonged economic recession and the financial crisis. These have combined to force companies to prioritise debt repayments rather than to leverage their balance sheets by implementing sizeable share buybacks.

ING: Since the change in the relevant laws last year, share buybacks have been pursued quite enthusiastically, particularly by blue chip companies such as Toyota, which are keen to raise shareholder value by improving return on equity. They are also being used as a method of picking up loose cross-shareholdings from forced sellers. However, most of this activity is coming from the larger blue chips while smaller companies have not been active, reflecting their relatively poor cash positions. On the whole, the market views buybacks positively and corporate Japan, where it can afford it, sees value at current levels.

Deutsche Bank: No, stock buybacks are not yet commonplace or large relative to the activity we see in other markets, particularly the US. But I would be careful about equating inactivity with a lack of faith in their own shares.

This is a new concept for Japanese companies and it takes time to determine policy and strategy. Moreover, a company has to not just see value in its shares but it must also be convinced that it has sufficient capital to afford to reduce its equity capital levels. Under current circumstances, I would expect Japanese companies to be very cautious about reducing capital when the global economy is in such a weak state and earnings are deteriorating or turning negative. In this sort of an environment, it is difficult to advise companies that they are overcapitalised - although there are debt free companies in Japan.

At the same time, many companies are under-leveraged and this is reflected in their low ROEs. Convincing these companies to use leverage is not an easy proposition. Over time we expect capital management to become a critical factor in Japan and the valuation of Japanese companies. This will be especially true when healthy companies face large sales of cross-shareholdings over time. Share repurchases should provide some of the liquidity necessary to absorb these large corporate holdings.

Morgan Stanley: Enthusiasm for stock buybacks is clearly increasing in Japan, but as with all new market developments, it will take time to be implemented widely. The early returns suggest that corporations that have undertaken such programmes have been rewarded by the market, either through generating improved returns on investment or through a positive signalling impact as to shareholder orientation. In addition to improving returns, corporations are concerned about absorbing the increased liquidity in the market resulting from sellers unwinding cross-shareholdings.

Lehman Brothers: The prohibition on treasury shares certainly discouraged the practice of share buybacks in the past. The impact of the recent Commercial Code changes, which eliminated that prohibition, remains to be seen, as the new rules became effective only on October 1.

The buyback announcement by Shikoku Electric shortly after the new rules became effective was interesting in that the company apparently purchased shares directly from various financial institutions that were presumably using the buyback to unwind significant holdings of the stock instead of via block trades into the public market.

JP Morgan: Rules regarding share buybacks by Japanese corporations were relaxed, effective October 1. However, one has to be mindful that there are companies that have financial capacity to buy back stocks; on the other hand there are a bunch of companies that do not have the financial capacity to do so. That is going to polarise companies.

Nikko Salomon Smith Barney: Stock buybacks are a feature of the Japanese market and are likely to become even more common with the recent emergence of treasury stock. It is fair to say that we see these less aggressively than we perhaps do in other countries. That is partly due to the fact that Japanese stocks are on average afforded higher valuations but also that the issuance process in Japan is a little more rigid than in other locations. The end result is that it is more beneficial for Japanese companies to maintain a certain amount of liquidity in the event that opportunities present themselves.

UBS Warburg: Not yet. However, the climate is changing rapidly, with even fairly traditional companies such as Toyota using share buybacks to manage cross-shareholding disposals while improving balance sheet efficiency.

We expect to see more and more buybacks. That said, I suspect that most Japanese companies will take a more conservative approach to leverage than Western companies. This is because they will want to preserve acquisition and investment capacity without reliance on raising new capital.


WHAT EFFORTS IS YOUR FIRM MAKING TO DEVELOP AND INITIATE M&A BUSINESS IN JAPAN, BOTH CROSS-BORDER AND DOMESTIC-DOMESTIC? IS THIS AN IMPORTANT BUSINESS TO YOU, AND IF SO, WHY?

UBS Warburg: Huge efforts. M&A is a pillar of our broader franchise. In Tokyo, we have painstakingly built a sizeable M&A team of diverse talents and we have prioritised excellence in M&A as key to our business. Looking ahead, the strategic and M&A dialogue with our clients will only grow in importance as Japanese companies take a more global and shareholder value driven approach to business. Building trusted advisory relationships with Japanese clients will be the essential condition for success right across the investment banking product range.

Deutsche Bank: M&A is critical to any investment banking franchise and will become even more important to Japanese companies both as they restructure and as the economy recovers and companies begin to look toward expansion.

Deutsche Bank has more than 20 active assignments in Japan and they reflect every type of activity.

We also are targeting numerous assignments involving the newest acquirer in the Japanese market, financial sponsors or MBO/LBO funds. We are very focused on the themes in each industry that will create strategic opportunities: lack of scale, non-core businesses; divestitures to generate capital for struggling companies; product deficiencies within the strong players in each sector; and global strategic alliances that create efficiencies.

Nomura: Nomura Corporate Advisors (NCA) is Nomura Group's primary vehicle for providing M&A related financial advisory services to clients. We have seen a dramatic increase in Japan-related M&A activity during the last three years, and we have nearly tripled the number of NCA staff during this period.

We see the M&A advisory business as a core element of our investment banking operation as it often helps top management define overall corporate strategy at a very fundamental level. With increased acceptance of M&A in Japan and with recent deregulation, we think the growth trend will continue during the next three to five years, and we are aggressively expanding cross-border M&A capacity at our international offices.

JP Morgan: We are in the early stages of an M&A boom. Old style Japanese capitalism is coming to end and I wouldn't say Anglo-Saxon, but true global capitalism is arriving. Japanese investors are becoming very impatient. Time is running out for senior managers at Japanese corporations.

While they consider restructuring their own organisations, the government is seriously considering a social safety net that would relieve corporations of the social welfare burden that has been part of the social contract between Japanese corporations and the people of Japan. Rather, we are now moving towards a more global, more transparent financial marketplace. The rock is starting to roll down the hill, and as it gains momentum, it will be impossible to stop.

Over the past year, we have been busy. We advised four out of the five property and casual insurance companies on their mergers in Japan. We also advised DKB and Fuji Bank in their acquisitions and sales.

Nikko Salomon Smith Barney: In the current market environment, we see a strategic dialogue with our clients as central to all aspects of our investment banking business. Such a dialogue is increasingly leading to M&A, both cross-border and domestic, being seen as central both to achieving a client's strategic objectives and in response to prevailing market conditions. The M&A team works in partnership with NSSB's industry groups to develop this dialogue with the firm's client base - drawing on the SSB global network.

Lehman Brothers: M&A is a critical component of our strategy in Japan. Providing high value added strategic advice is the most effective way to develop tight relationships with key decision makers. In this regard, there is no longer a distinction between cross-border and domestic deals. As we develop industry specific expertise in both investment banking and research coverage, a number of Japanese issuers have come to ask for our opinion when contemplating industry shaping transactions with Japanese counterparts.

Morgan Stanley: We believe that the M&A market in Japan will continue to have long term growth potential as more companies recognise M&A as a strategic tool to achieve important corporate objectives. Our mission is to help corporate Japan become aware of the benefits of M&A by demonstrating the quality of our advisory services. These services range from simple corporate finance measures to complex strategic matters such as domestic and cross-border strategic alliance, unlocking of excess or low return capital, divestment of non-core assets, and key defence consideration.

To capitalise on the growth of the market, we increased the size and capability of our M&A team in Japan while global human resource investment is constrained.

ING: M&A is a small but strategically important business for us, particularly in a cross-border sense. The ING Group's strength is its client base, most notably in Europe and Asia, and our aim is to provide cross-border access in either direction between Japanese companies and their counterparts in Europe or Asia. We focus on relatively few industrial sectors in order not to dilute our efforts and we also try to leverage the group's financing capabilities to develop new opportunities such as LBOs/MBOs.


WHAT EFFORTS IS YOUR FIRM MAKING TO DEVELOP AND INITIATE PRIVATE EQUITY/VENTURE CAPITAL BUSINESS IN JAPAN? IF YES, WHY? IF NOT, WHY NOT?

Deutsche Bank: We see this emerging marketplace as very important to the Japanese economy over time. We have been, and will continue to be, both an investor in our own name as well as a major source of financing and advice for buy-outs. Deutsche Bank has already invested over $125m in private equity and we recently announced our first 100% acquisition.

We believe that the development of the private equity and high yield markets in Japan is vital for the economy. To help develop this market we have dialogues with companies considering MBOs as a strategy and the financial sponsors that have raised billions on the promise of the development of this market.

Nomura: Nomura has Jafco, the largest and oldest venture capital business in Japan, as an affiliate, holding a 36% stake in the company. Since its establishment in 1973, Jafco has been investing in pre-IPO stage companies, but is now moving into a more hands-on type of private equity investment, retaining controlling stakes of the investee companies in the form of MBOs and MBIs. We believe this type of private equity business will grow further as Japanese companies intend to maximise corporate value through restructuring.

Nikko Salomon Smith Barney: One of the elements in the much discussed restructuring among Japanese corporates is the emergence of outright sale as a credible alternative to joint ventures, spin-offs and so forth.

This is, at least in part, due to the emergence of a more liquid market for such assets. While overseas purchasers remain important in this, private equity investors can have a big impact on this liquidity. NSSB has allocated specific resources within investment banking to co-ordinate our relationship with the private equity houses - both as important clients in their own right and as instrumental in achieving the strategic objectives of our corporate clients.

UBS Warburg: We have established UBS Capital in Japan and there is a steady stream of very interesting deals. On the investment banking side, we are financial adviser to a number of private equity firms.

Our efforts reflect confidence that private equity will continue to grow in importance in Japan. Steady, not spectacular growth; growth reflecting an increasing number of businesses available at attractive valuations with managements more open to focusing on financial return.

JP Morgan: We have JP Morgan Partners. That is the principal arm for our private equity activities. We support them with a dedicated team that covers the financial sponsors group. We treat them as clients. We provide advisory service and financing service. If the business grows as expected, we also help them to exit the investment.

Morgan Stanley: We believe the private equity market in Japan will undergo rapid growth over the next few years. We made our first investment in Japan in 1999, and since then have continued to seek and make private investments. We also provide financing and advisory services to financial sponsors, and are focused on playing an active role in the development of the market.

ING: We have no dedicated private equity or venture capital initiatives in Japan at present. Within the ING Group there are various pools of private equity and venture capital available to which we can apply with relative ease for a particular opportunity in Japan. Of course, we keep under review the question of developing something along these lines dedicated to Japan alone, but for the moment the market seems to be awash with such funds and rather short of investment opportunities. This leads us to conclude that there may be greater mileage in concentrating instead on the provision of leverage to such situations as become available.


DO YOU SEE SECURITISATION AS A MAJOR GROWTH BUSINESS? WHAT ARE YOU DOING TO GEAR UP YOUR CAPABILITY AND WHY?

Lehman Brothers: Absolutely. One of the fundamental underpinnings of a potential Japanese economic recovery is the continued evolution of the capital markets. The main driver of that and the largest asset class (after government securities) will be and should be structured finance securities.

Market forces will force the Japanese financial system to go to a market-based pricing system and, consequently, should create diversification of economic risk and capital. As with other areas of the world, securitisation has been the fastest growing area in the capital markets, with applications that have advanced substantially past the historical mortgage securitisation framework.

In the last few years, we have seen new laws being passed in most countries to encourage securitisation as not only a funding mechanism but also as a way to appropriately price credit risk, in all its forms.

Japan has taken steps to increase creditor protection and has passed new legislation to stimulate the economy by encouraging certain forms of securitisation (REITs by example - equity securitisation). However, we believe we are at the beginning, and there are many things that need to change and will change in the future which should create a much more developed legal and regulatory framework. That will encourage an even greater pace of securitisation of financial assets.

We have built our team across the board in the last three years. We have full structured finance capabilities in cash and synthetic ABS, CDOs, MBS, CMBS and principal finance and have executed many transactions including many first time issuance transactions in all categories.

JP Morgan: Securitisation in itself is a very narrow definition. We prefer to see it as part of asset-based lending. The growth of asset-based lending is going to supplement pure corporate finance. So, acquisition financing, bridge financing and real state financing is becoming a core business for us. Equity derivatives can also be combined with asset-based lending as well.

UBS Warburg: We are making a major push to develop market leadership in J-REITs because the opportunity is compelling and obvious. On the debt side, we are more selective. Margins in agency securitisation business are razor thin. On the other hand, securitisation linked to exiting principal positions is part of a very attractive broader business opportunity. We are certainly putting major focus on principal finance opportunities and we are confident that we will see increasingly large and innovative transactions.

Morgan Stanley: We certainly think that securitisation will continue to grow as a preferred funding source for corporate Japan, and in particular as a source of financing for real estate and consumer finance assets. Securitisation will also continue to be used selectively as both an acquisition and a strategic corporate finance tool.

Nomura: Nomura has been active in securitisation of cashflows since the late 1980s, mostly in non-Japanese assets. We have implanted know-how accumulated in the US and UK into our domestic market in Japan, and we established the structured finance department in May 2001.

We understand the market for structured fixed income securities is still small in Japan and competition with conventional bank loans is fierce, but it will grow in the near future. Nomura has initiated the real estate investment trust market by launching the first REIT product in September 2001, after five years of preparation including negotiations and proposals to lawmakers and regulatory bodies. We believe the J-REIT market will enjoy a high growth rate in the next several years.

ING: We have seen securitisation as a major growth business for several years now and have an active business in Japan, which operates as part of a global network of securitisation businesses. It is a technique that is applicable to many different classes of assets so long as they generate cashflow, and it is particularly relevant in an economy suffering from both weak banking fundamentals and a flight to quality in the capital markets.

We will continue to focus on our own specialist areas of securitisation in Japan, which tend to be away from the more commoditised end of the market.

Deutsche Bank: We are already well geared up. Deutsche Bank is a leader in this area and we believe this market will continue to grow. We consider securitisation to be a key corporate finance tool to apply to our clients' capital management and funding issues.


WHAT IS THE KEY TO UNLOCKING JAPAN'S VAST PERSONAL SAVINGS, ESTIMATED AT THE EQUIVALENT OF $12TR, OR MORE THAN THE VALUE OF THE US EQUITY MARKET? HOW CAN MORE OF THESE FUNDS BE ENCOURAGED INTO THE CAPITAL MARKETS AGAIN?

Nomura: In Japan, savings have been promoted above securities investments. The government encouraged savings, and securities investments have been regarded as almost unhealthy.

We need to change people's perception as well as remove structural impediments like taxes. The retail sector is now very cautions about the Japanese economy. If the economy starts to pick up, we can expect individuals to come back to the equity market. Next, as a government policy, we should increase the number of individual investors by large offerings. For this purpose, privatisation works extremely well. Investment banks should bring attractive new products - ETFs and REITs are examples. It is our responsibility to circulate money through securities investments, since money is the lifeline of the whole economy.

Morgan Stanley: If there is a demonstrable focus of Japanese corporations on shareholder value, leading to improved corporate governance and necessary corporate restructuring, then we will see tangible bottom line results. This should make investors more comfortable with moving out of traditional vehicles such as postal saving accounts. In addition, if there is genuine reform of the zaito system, we will see more market-based mechanisms being used to allocate capital in Japan, to increase opportunities for the end investor.

Deutsche Bank: It is straightforward - we need an attractive equity market. Rising interest rates and an active bond market would help as well. Essentially, we need nothing short of an economic recovery. While we all have been amazed at the how the Japanese investor has stuck to low yielding bank deposits, in retrospect that investor looks very rational, if not brilliant.

Nevertheless, with an ageing population and these still high savings rates, when there is a clear upward direction in the economy and equity markets and the improving consumer confidence that comes with it, those funds will eventually flow into the market and turn into a flood. But don't ask me to predict the timing.

Lehman Brothers: Everything gets back to the banking system and the need to fix the non-performing loans (NPLs) problem. For years, Japanese savers have faced deflation - both in consumer and asset prices - while the government guarantees their bank deposits in full.

Another ¥250tr of guaranteed 'inactive money' sits in the postal savings system. Despite very low nominal interest rates, households are incentivised by positive real rates, poor stock market performance and a government guarantee, to keep the bulk of their financial wealth in low yielding deposits.

The government must first address the high level of NPLs currently weighing on Japan's banks. Doing so will boost the stock market, help to counter deflation, and restore the public's faith in the banking system. The government will then be able to scale back the scope of the guarantees on bank deposits.

ING: Risk and return considerations motivate retail investors in Japan, just as elsewhere. Returns on equity investment over the last decade have been very poor in both absolute and relative terms. At the same time, savings held in banks or the Post Office have been effectively risk free. Mobilising retail savings back into the markets will require a return of investor confidence that in turn requires a healthy banking system and economic growth. In the meantime, the privatisation of postal services and the re-imposition of limits on deposit insurance might focus the mind of savers about where they put their funds.

UBS Warburg: Two things are key. First, establishing an attractive open architecture product offering delivered through client advisory relationships - compelling enough to win the trust of the clients. This is in stark contrast with the churn approach traditionally applied by the Japanese brokerages. The key will be to reward client advisers on asset gathering, not transaction volume. Second, Japan needs some sustained market performance. Given the falling trend of the Japanese stock market over the last decade and deflation, leaving wealth invested in cash has not been an irrational strategy for the average retail investor.

JP Morgan: From the macro or from the asset allocation point of view, the government has to introduce proper tax incentive to asset allocation for individuals. Tax incentives would increase risk appetite again. The other key is to increase investor confidence. This entails a turnaround in the Japanese economy, a more transparent stock market where investors have confidence in the valuation of companies they purchase, and better advice to retail investors from professional brokers. Equity purchases must be seen as part of a well balanced financial portfolio, not like a bet at the racetrack. *

  • 14 Nov 2001

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 300,081.56 1165 8.07%
2 JPMorgan 293,494.39 1273 7.90%
3 Bank of America Merrill Lynch 274,298.19 930 7.38%
4 Barclays 227,181.22 846 6.11%
5 Goldman Sachs 201,953.92 668 5.43%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 42,985.58 172 7.09%
2 JPMorgan 38,694.99 77 6.39%
3 Credit Agricole CIB 32,828.90 156 5.42%
4 UniCredit 32,244.17 143 5.32%
5 SG Corporate & Investment Banking 31,187.44 119 5.15%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 12,829.62 54 9.00%
2 Goldman Sachs 12,047.80 58 8.45%
3 Citi 9,451.48 53 6.63%
4 Morgan Stanley 8,043.15 48 5.64%
5 UBS 7,829.15 30 5.49%