December 13, 2012 1:43 pm

BofA pulls out of Japan private banking

Bank of America Merrill Lynch is disposing of its Japanese private banking joint venture with Mitsubishi UFJ Financial Group, becoming the latest in a string of foreign banks to pull out of high net-worth retail banking in Japan.

BofA is selling its 49 per cent stake in the joint venture, which Merrill Lynch and MUFG set up in 2006, to the Japanese group for about Y39bn ($470m). However, the US bank will continue to provide products and business support to the private banking business for the time being, the groups said.

The decision to dissolve the joint venture in Japan follows BofA’s sale of its lossmaking, non-US wealth management business to Julius Baer, the Swiss private bank, for SFr860m ($840m), in August.

The joint venture with MUFG was not included in that deal.

MUFG is increasingly co-operating round the world with Morgan Stanley, the US bank in which it has a 22 per cent stake, Nobuyuki Hirano, president of Bank of Tokyo-Mitsubishi, the core bank in the MUFG group, told the Financial Times this month.

The private banking sale by BofA follows moves by HSBC and Standard Chartered to pull out of the market serving Japan’s high net-worth individuals.

HSBC closed its premier banking business – targeting those with Y10m or more in financial assets – and a year ago sold its private banking operations to Credit Suisse. Standard Chartered is to close its priority banking business next spring.

Stanley Sawai, a partner in the financial services division of KPMG Azsa in Tokyo, said: “Japan is a difficult market for foreign banks. It’s a very expensive place to do business . . . and as a result, profitability is quite low.”

Before the financial crisis, foreign banks had looked to Japan, with its Y1,500tn in household financial assets, as a promising and largely untapped market for private banking services. Japan’s financial regulator had also campaigned for a shift from savings to investments.

However, 56 per cent of Japanese household assets are still held as cash or bank deposits, according to the Bank of Japan.

The private banking joint venture between BofA and MUFG had operating revenues of Y25bn in the year to March 2012 and net profits of Y6.8bn.

The joint venture’s assets under management have increased steadily over the years, a representative of MUFG said.

“While Japan has not seen much of a shift from savings to investments, in the long run, we believe that shift will occur,” he said.

MUFG is seeking to buy a 20 per cent stake in VietinBank from the Vietnamese government for Y60bn, Japanese media reported.

Japanese banks have been expanding overseas to make up for stagnant loan demand at home.

Last year, Mizuho agreed to acquire a 15 per cent stake in Vietcombank, another Vietnamese state-owned lender.

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