Japanese Banks Invade Wall Street

Japanese banks have begun to surge into the Wall Street void by purchasing shares in cash-strapped investment firms, according to The Washington Post.

Mitsubishi UFJ expects to buy a 10 to 20 percent share in Morgan Stanley for over $8 billion. Mitsubishi UFJ holds $1.15 trillion in deposits, allowing the firm to make sweeping purchases with relative ease. The bank, Japan’s largest, spent $10 billion in August to acquire the remaining shares of UnionBanCal Corp. The Union Bank of California was one of the largest banks in the U.S.; it is now foreign owned.

Nomura Holdings, Japan’s largest investment brokerage, was also active in its pursuit of U.S. firms. It came to an agreement with now defunct Lehman Brothers, worth $190 million, to purchase the company’s Asia-Pacific franchise.

With Lehman Brothers struggling through a difficult bankruptcy, the sale of overseas assets was welcome to executives and shareholders. Short-sighted American executives, only interested in making a quick fortune before cashing-in, have undercut their own businesses and the economy. Their Japanese counterparts are thinking long-term; having already struggled through their own elongated economic downturn.

When Japan’s economy crashed in the 1990s, they restructured their entire economic strategy in order to avoid unnecessary risks. The U.S. was able to reap the benefits of global growth while Japan rebuilt and reloaded. U.S. policymakers and corporate executives apparently learned no lessons from the Japanese; now we are all suffering as a result.

The Japanese are not throwing their money into empty investment opportunities. They fully expect profitable long-term returns on their investments in U.S. companies. The natural market cycle will eventually shift up again, and when it does we will watch as billions flow out of the U.S. and into Japanese coffers.

Japan is hardly an economic paradise, retail sales have declined for over a decade and the government has lost track of millions of its citizens’ pensions. The Bank of Japan keep its interest rates incredibly low (as low at 0.5 percent), pressuring the yen with inflation. Furthermore, while U.S. public debt is soaring, the national debt in Japan is the highest in the world at 196 percent of GDP. Japanese public debt soared in the 1990s when its government bailed-out failing institutions, just as the U.S. is doing now.

The Japanese are able to make large-scale acquisitions because their household savings are so high. While the general Japanese economy could use work, the banking system is very robust. Citizens tend to be wary of stock investing (see: Asian Economic Crisis) so they put their money in insured deposits.

Japanese savings are much higher per capita than American savings, giving Japanese commercial banks incredible cash assets. These cash assets are increasingly being used to purchase American interests. Americans prefer to live lavishly and well beyond their means. We happily agree to live in debt, with everything from credit cards to college loans weighing us down. If Americans would simply save more of their money, and if the government were simply less interested in boosting consumption with stimulus packages, we would be in much better fiscal shape.

We should be very concerned about the long-term consequences of this buying spree. Our country is being sold out from under us. We need responsible corporate elites who will not sell-out to save their fortunes at the expense of their employees and customers. We also need to encourage personal savings, and give our financial system the capital it needs to exist without foreign acquisitions or government bailouts fashioned from overseas loans.

Source The Washington Post:

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