Equity Underwriting in Japan

Japan's corporate reforms, which started during the deflationary times in the 1990s have resulted in significant consolidation in the financial services industry and reform of a few government-owned companies. In the end, this resulted in formation of three very large banks: Mizuho Financial Group (April 1, 2002 merger of Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan), Mitsubishi Tokyo Financial Group (October 1, 2005 merger of Mitsubishi Tokyo Financial Group and UFJ Holdings), and Sumitomo Mitsui Financial Group.

When it comes to equity underwriting, Japanese securities houses such as Nomura Securities, Daiwa SMBC, and Mizuho Financial Group are the market leaders for the large established companies listed in the First Sections of Japanese stock exchanges. Foreign investment banks can find themselves at a distinct disadvantage when competing with local firms for equity underwriting business because they lack the strong distribution network among Japanese investors that Japan's big domestic securities houses can offer. Foreign investment banks have generally been more successful in the second tier market or the clients who are in the Second Section of the Tokyo and Osaka Stock Exchanges.

However, global banks have found some success in equity underwriting. Two banks with foreign ownership that have in particular gained significant equity underwriting market share in Japan are UBS and Nikko-Citigroup, a joint venture investment bank between Nikko Cordial Corp. and Citigroup. UBS was co-lead manager, with Nomura, for the Y374 billion IPO of J-Power, an electricity utility. Nikko Citigroup and Goldman Sachs lead managed the international offering Jupiter Telecommunications, Japan's largest cable TV company. Another notable successful deal for a global bank was Deutsche Bank's being tapped to co-lead the Y111.5 billion IPO of Elpida Memory a memory chipmaker. When bidding for deals at this level, foreign securities houses are able to tap from foreign institutional investors to fill the orders. Additional opportunities for US and European securities firms in Japan can be found in their existing client base of private equity and venture capital firms who have lead restructuring deals and funded early stage companies try to exit through IPO's.