Lehman pain gain elsewhere

September 13, 2009
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, TOKYO, Sep 13 – Kenichi Watanabe had been CEO of Nomura for just five months when he heard of the Lehman Brothers collapse but when the chance came to buy chunks of the venerable Wall Street bank, he grabbed it.

The purchase of Lehman\’s assets in Asia, Europe and the Middle East transformed Nomura into a top global player and marked a sea change for Japan\’s once risk-averse banks, just emerging from their own financial crisis.

What made Nomura\’s move almost a year ago all the more remarkable was that it came on the same day that Japan\’s top bank Mitsubishi UFJ Financial Group announced it would buy a slice of troubled US giant Morgan Stanley.

Since then Japan\’s number three bank Sumitomo Mitsui Financial Group has bought troubled Citigroup\’s Japanese brokerage arm, rounding off a series of deals that has tilted the balance of power in the global finance industry.

"Asia was fortunate not to hold much toxic subprime debt or have many asset bubbles before the credit crunch hit," said Peter Tebbutt, a banking analyst at Fitch Ratings in Hong Kong

Lehman Brothers, the 158-year-old US investment bank, filed for bankruptcy on September 15, 2008, collapsing under the weight of billions of dollars of failed subprime mortgage securities.

The ensuing chaos sparked a financial firestorm and triggered the worst economic crisis since the Great Depression in the 1930s.

But its collapse, and the woes of other US financial titans, presented Japanese banks with a golden opportunity to expand overseas thanks to their relatively limited exposure to subprime debt.

Experts say the mega-deals highlight a new-found confidence among Asian banks to beef up their presence overseas.

"Financial firms in certain Asian countries are getting very serious about expanding internationally to grow their business," said Neil Katkov, head of research at the financial consultancy Celent.

"There\’s a very high level of activity among financial institutions that belies the doom and gloom predictions earlier this year," he said.

To be sure, Asian banks did not escape the crisis completely unscathed.

Japan\’s second-largest bank Mizuho Financial lost 6.4 billion dollars in the year to March and Mitsubishi UFJ went 2.8 billion dollars in the red, at current exchange rates.

Nomura for its part suffered a record 7.8-billion-dollar annual shortfall, partly due to the cost of the Lehman deal.

But the losses were dwarfed by those at Western peers such as US insurance giant AIG, which lost 99.3 billion dollars in 2008, and Swiss UBS, which went about 19 billion dollars into the red.

The resilience of Asia\’s banking sector has helped many countries in the region to weather the global recession better than the United States and Europe.

Regional economic powerhouse China, for instance, has urged its banks to keep lending through the crisis to prop up the domestic economy.

"The impact on Chinese banks from direct exposure to overseas problem assets was very small," said Charlene Chu, a senior director at Fitch Ratings China.

"But the impact on the economy was quite large as banks were called on to step up to the plate and lend significant amount to prop up the domestic economy. That has created a lot of risks in the financial system."

Indian banks, which for years chafed at cautious domestic regulations as they watched their foreign counterparts make massive profits from high-risk strategies, have also been relatively insulated from the crisis.

"India\’s economic problems did not emerge from the financial sector. They started with the real economy and shifted to the financial sector," said Dharma Kriti Joshi, an economist at the Mumbai-based credit rating agency Crisil.

Korea, whose banks were initially seen as fairly vulnerable to the crisis, moved swiftly to guarantee up to 100 billion dollars on foreign borrowing — a bold and ultimately successful move to stabilise turbulent financial markets.

"The impact of the global financial crisis on South Korea\’s banking sector was meagre in general," said Choi Chung-Wook, a senior banking industry analyst at Seoul\’s Daishin Economic Research Institute.

"The crisis, however, served as an alarm bell to the banks that they should manage their assets better than now, otherwise they might slip into trouble."

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