Japanese Banks Need Stronger Shareholder Relations To Expand

(MoneyWatch) 
Strong market conditions often present great opportunities to raise much-needed capital for both the ambitious and the struggling. But while opportunities for extra liquidity abound, you can get punished for taking the practice to its extreme.

Japanese broker Daiwa Securities dropped 12 percent earlier today in Tokyo after it announced it would raise $2.5 billion through its first equity offering in 20 years. The firm said it would use the money in order to expand operations in a 345 million new-share issue which could dilute existing shareholders by as much as 25 percent.

And Ashikaga Holdings, a lender acquired by Nomura earlier this year, will be spun off by the bank into an IPO as soon as 2010, according to Bloomberg. Not to be outdone, Mizuho is eyeing a giant ¥600 billion ($6.5 billion) fundraising exercise this week.

It has been pointed out here at BNET Finance before how Japanese banks are looking to convert themselves from hierarchical deposit-taking institutions into lean, pan-Asian, multi-national investment banks. Indeed, just look at Sumitomo's relationship with Goldman Sachs, in which it is a major shareholder, or Mitsubishi UFJ's strengthening ties with Morgan Stanley, and the point couldn't be clearer.

Still, Japanese banks ought to be aware that if they pursue growth plans too swiftly for the comfort of domestic market conditions, their big ambitions may not even get off the ground.

"Investors are particularly sensitive about equity offerings by financial institutions," Hitoshi Yamamoto, chief executive of Fortis Asset Management Japan, told Reuters this morning. "Their business outlook still remains unclear and a large equity offering is a negative news."

In the process of expansion, it pays to be sensitive to the sentiments of your backers. If Japanese banks pursue their goals for global domination of the financial services industry at the expense of their shareholders' heightened nerves, that will just put them back at square one.

Japanese firms are notorious for being shareholder-unfriendly. Turning that culture on its head may turn out to be the biggest hurdle for the nation's ambitious banks.

Related Reading at BNET Finance:

• Sumitomo & Mitsubishi UFJ Go "Head-to-Head" In Battle For Dominance
• Japan: Land of Rising Risk
• A Marriage Made in Japan: Morgan Stanley & Mitsubishi UFJ