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InterviewsJanuary 4 2016

Mizuho takes on the Americas

How is Japanese mega-bank Mizuho growing its investment banking franchise in the Americas? Stefania Palma talks to Mizuho Securities USA's chief executive, John Koudounis, to find out.
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Mizuho takes on the Americas

Two-decade-long deflation and a record low-interest-rate environment are pushing Japanese mega-banks to diversify revenue sources out of lending into fee-based business – such as investment banking – and to expand abroad. Mizuho’s US investment banking arm – Mizuho Securities USA – is capitalising and growing on the back of both trends.

Mizuho Securities USA’s debt capital markets group has spearheaded the subsidiary’s growth. Within the space of four years, the lender has jumped up eight places in the bookrunner league table for US corporate deals to position 11 in mid-2015, according to Bloomberg. The subsidiary also made its name as a lead manager in the largest and second largest bond deals in history – Verizon’s $49bn trade and Actavis’s $21bn note.

Exits and entrances

The bank is taking advantage of big capital markets players – including Credit Suisse, Deutsche Bank, Barclays, UBS and Royal Bank of Scotland (RBS) – exiting the business both within and beyond US borders. “Many clients are not being serviced as well as they used to because many banks are pulling out of the Americas. There is an opportunity for us there,” says John Koudounis, chief executive at Mizuho Securities USA.

Outside the US, Mizuho purchased West LB’s São Paulo branch in 2012 and has operations in Chile, Mexico and Canada to service large utilities and energy sector clients.

To compete with banks that are not scaling back (such as Goldman Sachs, Morgan Stanley, JPMorgan and Bank of America Merrill Lynch), Mizuho Securities USA has been hiring “Western-style, Wall Street people from firms across the street” that have been struggling with tightening regulation following the financial crisis of 2008. “This plays to our hand. We can continue to grow businesses in a way that doesn’t have to be very capital intensive,” says Mr Koudounis.

Mr Koudounis feels lucky in this respect. As a developing franchise, Mizuho Securities USA did not have a lot of business to cut as regulation became stricter. “We just grew areas that we knew would not be affected by changing regulation,” adds Mr Koudounis.

RBS opportunity

RBS is one of the banks scaling back in the Americas. Mizuho jumped on the opportunity and acquired RBS’s North American loan commitments for $3bn and some of its staff in early 2015.

“It took the business plan forward by one-and-a-half years, and took us two years ahead in terms of where we wanted to be with growth,” says Mr Koudounis. “We already see relationships building on the back of this purchase. We are able to get more underwriting deals.”

While the RBS acquisition aimed to further relationships with blue-chip companies, Mizuho Securities USA is also venturing into high-yield, emerging market borrowers and asset-backed securities – products that are very much in demand in today’s global low-rates environment – in an uncharacteristic move for a Japanese bank.

“Japanese banks traditionally lend money to people that don’t need it – they are very conservative. But we are starting to look down the credit curve. It is a natural progression as the business grows. We have ventured down to crossover deals or to borrowers slightly below investment grade. We won’t be a distress house any time soon, but we will go down the credit curve as it makes sense,” says Mr Koudounis.

Securities business

The securities house moved up the ranking for high-yield underwriting from 41st to 18th place, according to Bloomberg, and is now one of the top 10 providers of asset-backed securities, according to the International Financing Review.

While Mizuho’s securities business keeps growing, the Japanese bank is considering jumping into retail and asset management in the US. This is in line with group president and CEO Yasuhiro Sato’s plan to turn Mizuho into a global bank.

Favourable regulation and Mizuho’s willingness to diversify deposits away from Japan make new retail business in the US attractive. “[Mizuho] has been looking at it for a while. This is something I feel would grow inorganically,” says Mr Koudounis.

On the asset management front, Mizuho consolidated some of its subsidiaries in Japan and will purchase approximately 16% of the equity interests in the Asian operations of San Francisco-based Matthews Investment Management. And more is to come. “We are looking to do more [in this field] in the US, maybe through a joint venture,” adds Mr Koudounis.

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