Goldman Sachs Group Inc. will form a company with Sumitomo Mitsui Financial Group Inc., Japan's second- biggest bank, to help it shed as much as 1 trillion yen ($9 billion) of bad loans, bankers familiar with the plan said.
Sumitomo Mitsui plans to hold a controlling stake in the company, which includes investment from Daiwa Securities SMBC Co., the bankers said, declining to be identified. Goldman, the third-largest U.S. securities firm by capital, will also be the largest investor in a fund set up to buy non-performing loans with its two Tokyo-based partners, they said.
Goldman, Merrill Lynch & Co. and other Wall Street firms are seeking to profit from helping Japan's biggest banks cut $181 billion of bad debts, betting the assets underlying them may gain in value as the economy recovers from a 12-year slump. Sumitomo Mitsui says it wants to halve its $47 billion of non-performing loans in the two years to March 2005.
``What Sumitomo may need is the power of Goldman Sachs's brand,'' said Muneyuki Tsuji, who manages the equivalent of $128 million, including Sumitomo Mitsui shares, at Japan Investment Trust Management Co. in Tokyo. ``The U.S. bank wants fees and can profit by selling the collateral behind the loans.''
Daiwa Securities SMBC, an investment-banking venture between Sumitomo Mitsui and Japan's second-largest brokerage, will work on restructuring companies for the new company, the bankers said.
``Nothing has been decided at this moment,'' Sumitomo Mitsui spokesman Takashi Morita said, declining to comment further. Goldman spokesman Orlando Camargo and Daiwa SMBC's Tomonori Akiya declined to comment.
Shares of Sumitomo Mitsui gained 1.9 percent to 547,000 yen in Tokyo trading today. The bank's stock rose 184 percent in six months, compared with a 33 percent rise in the Topix index.
Lower Costs
Mizuho Financial Group Inc., Mitsubishi Tokyo Financial Group Inc. and other lenders this month reported higher profit for the first-half ended Sept. 30, because of lower costs to dispose of non-performing loans. Japan's economy grew at the fastest clip in 2 1/2 years in the second quarter, helping banks' clients repay debt.
The International Monetary Fund cautioned yesterday that Japanese banks can't rely on an economic recovery before tackling the remainder of their bad debt, the legacy of late 1980s and early 1990s investments in property that turned sour.
``If banks wait for the economy to solve their problems, they may never work themselves out over their difficulties,'' said Stefan Ingves, author of the IMF report on Japan's banks.
Investment
Sumitomo Mitsui is in talks with Japan's Financial Services Agency regarding details of the investment, the bankers said. Isao Nishio, deputy director at the banking division who oversees Sumitomo Mitsui, declined to comment.
The bank, which invested $500 million in Goldman in 1986, needs to reduce the cost of disposing of non-performing loans to meet its target of 150 billion yen profit this business year. Sumitomo Mitsui had a 465 billion yen net loss last year because it incurred 1.07 trillion yen of bad-loan costs and wrote down the value of its shareholdings.
Sumitomo Mitsui reduced its bad loans by 1.2 trillion yen to less than 4 trillion yen in the first half, the Sankei newspaper reported earlier, citing the bank's president Yoshifumi Nishikawa.
Sumitomo Mitsui sold the remainder of its Goldman stake 18 months ago, reaping a $2.45 billion profit from its 15-year investment.
Profitable Investment
Goldman has already gained from its $1.35 billion investment in Sumitomo Mitsui made in January, which contributed about 14 percent of its third-quarter profit after the stock doubled.
Goldman had a $677 million profit in the three months ended Aug. 31, an increase of 30 percent from the same quarter a year earlier. The firm booked a $277 million gain from the Sumitomo Mitsui investment, which contributed to $346 million of net revenue from principal investments.
Merrill, the world's largest securities firm by capital, is also seeking to profit from its $1.1 billion investment in UFJ Holdings Inc., Japan's fourth-largest lender. The U.S. bank formed a venture with UFJ to help tackle its bad loans.
Merrill is also working with other financial firms to help Mizuho, Japan's largest lender by assets, dispose of as much as 4.6 trillion yen of bad loans. Mizuho also hired Cerberus Partners LP, Deutsche Securities Ltd., Lone Star Funds, Morgan Stanley and UBS AG to help recover the debt from 1,000 borrowers.
Daiwa SMBC's role in the venture will be to help revitalize corporate borrowers or find buyers for some of their businesses, the bankers said. The firm doubled its revenue for providing such merger advice in the year ended March 31.
Daiwa SMBC advised Minolta Co. on its merger with Konica Corp., Japan's fourth-biggest maker of cameras and imaging equipment. The firm also advised Daiei Inc. on its sale of four hotels to Goldman, according to Bloomberg league tables.
Sumitomo Mitsui plans to hold a controlling stake in the company, which includes investment from Daiwa Securities SMBC Co., the bankers said, declining to be identified. Goldman, the third-largest U.S. securities firm by capital, will also be the largest investor in a fund set up to buy non-performing loans with its two Tokyo-based partners, they said.
Goldman, Merrill Lynch & Co. and other Wall Street firms are seeking to profit from helping Japan's biggest banks cut $181 billion of bad debts, betting the assets underlying them may gain in value as the economy recovers from a 12-year slump. Sumitomo Mitsui says it wants to halve its $47 billion of non-performing loans in the two years to March 2005.
``What Sumitomo may need is the power of Goldman Sachs's brand,'' said Muneyuki Tsuji, who manages the equivalent of $128 million, including Sumitomo Mitsui shares, at Japan Investment Trust Management Co. in Tokyo. ``The U.S. bank wants fees and can profit by selling the collateral behind the loans.''
Daiwa Securities SMBC, an investment-banking venture between Sumitomo Mitsui and Japan's second-largest brokerage, will work on restructuring companies for the new company, the bankers said.
``Nothing has been decided at this moment,'' Sumitomo Mitsui spokesman Takashi Morita said, declining to comment further. Goldman spokesman Orlando Camargo and Daiwa SMBC's Tomonori Akiya declined to comment.
Shares of Sumitomo Mitsui gained 1.9 percent to 547,000 yen in Tokyo trading today. The bank's stock rose 184 percent in six months, compared with a 33 percent rise in the Topix index.
Lower Costs
Mizuho Financial Group Inc., Mitsubishi Tokyo Financial Group Inc. and other lenders this month reported higher profit for the first-half ended Sept. 30, because of lower costs to dispose of non-performing loans. Japan's economy grew at the fastest clip in 2 1/2 years in the second quarter, helping banks' clients repay debt.
The International Monetary Fund cautioned yesterday that Japanese banks can't rely on an economic recovery before tackling the remainder of their bad debt, the legacy of late 1980s and early 1990s investments in property that turned sour.
``If banks wait for the economy to solve their problems, they may never work themselves out over their difficulties,'' said Stefan Ingves, author of the IMF report on Japan's banks.
Investment
Sumitomo Mitsui is in talks with Japan's Financial Services Agency regarding details of the investment, the bankers said. Isao Nishio, deputy director at the banking division who oversees Sumitomo Mitsui, declined to comment.
The bank, which invested $500 million in Goldman in 1986, needs to reduce the cost of disposing of non-performing loans to meet its target of 150 billion yen profit this business year. Sumitomo Mitsui had a 465 billion yen net loss last year because it incurred 1.07 trillion yen of bad-loan costs and wrote down the value of its shareholdings.
Sumitomo Mitsui reduced its bad loans by 1.2 trillion yen to less than 4 trillion yen in the first half, the Sankei newspaper reported earlier, citing the bank's president Yoshifumi Nishikawa.
Sumitomo Mitsui sold the remainder of its Goldman stake 18 months ago, reaping a $2.45 billion profit from its 15-year investment.
Profitable Investment
Goldman has already gained from its $1.35 billion investment in Sumitomo Mitsui made in January, which contributed about 14 percent of its third-quarter profit after the stock doubled.
Goldman had a $677 million profit in the three months ended Aug. 31, an increase of 30 percent from the same quarter a year earlier. The firm booked a $277 million gain from the Sumitomo Mitsui investment, which contributed to $346 million of net revenue from principal investments.
Merrill, the world's largest securities firm by capital, is also seeking to profit from its $1.1 billion investment in UFJ Holdings Inc., Japan's fourth-largest lender. The U.S. bank formed a venture with UFJ to help tackle its bad loans.
Merrill is also working with other financial firms to help Mizuho, Japan's largest lender by assets, dispose of as much as 4.6 trillion yen of bad loans. Mizuho also hired Cerberus Partners LP, Deutsche Securities Ltd., Lone Star Funds, Morgan Stanley and UBS AG to help recover the debt from 1,000 borrowers.
Daiwa SMBC's role in the venture will be to help revitalize corporate borrowers or find buyers for some of their businesses, the bankers said. The firm doubled its revenue for providing such merger advice in the year ended March 31.
Daiwa SMBC advised Minolta Co. on its merger with Konica Corp., Japan's fourth-biggest maker of cameras and imaging equipment. The firm also advised Daiei Inc. on its sale of four hotels to Goldman, according to Bloomberg league tables.
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