VZCZCXRO2170
OO RUEHDE RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #2679/01 2700848
ZNR UUUUU ZZH
O 260848Z SEP 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7538
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0240
RUEHBJ/AMEMBASSY BEIJING PRIORITY 5541
RUEHRL/AMEMBASSY BERLIN PRIORITY 1495
RUEHSW/AMEMBASSY BERN PRIORITY 1834
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2789
RUEHDO/AMEMBASSY DOHA PRIORITY 0273
RUEHKU/AMEMBASSY KUWAIT PRIORITY 0388
RUEHLO/AMEMBASSY LONDON PRIORITY 2192
RUEHOT/AMEMBASSY OTTAWA PRIORITY 9728
RUEHFR/AMEMBASSY PARIS PRIORITY 6274
RUEHRH/AMEMBASSY RIYADH PRIORITY 0596
RUEHRO/AMEMBASSY ROME PRIORITY 2169
RUEHUL/AMEMBASSY SEOUL PRIORITY 1536
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 7222
RUEHDE/AMCONSUL DUBAI PRIORITY 0107
RUEHFT/AMCONSUL FRANKFURT PRIORITY 0528
RUEHFK/AMCONSUL FUKUOKA PRIORITY 0073
RUEHHK/AMCONSUL HONG KONG PRIORITY 6587
RUEHNAG/AMCONSUL NAGOYA PRIORITY 8163
RUEHNH/AMCONSUL NAHA PRIORITY 2432
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 3815
RUEHKSO/AMCONSUL SAPPORO PRIORITY 0648
RUEHBS/USEU BRUSSELS PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 7154

UNCLAS SECTION 01 OF 03 TOKYO 002679 
 
SENSITIVE 
SIPDIS 
 
STATE FOR E, EEB, AND EAP/J 
TREASURY FOR OIA DOHNER 
STATE PASS USTR FOR CUTLER, BEEMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL JA
SUBJECT: JAPANESE FINANCIAL COMPANIES ACTING IN U.S. 
FINANCIAL CRISIS 
 
SENSITIVE BUT UNCLASSIFIED.  CONTAINS PROPRIETARY INFORMATION. 
 
¶1. (SBU) SUMMARY:  Japanese financial companies are picking 
up assets available as a result of the failure of Lehman 
Brothers and other U.S.-based financial firms to grow their 
international presence.  Announcements Japan's largest bank, 
Mitsubishi UFJ Financial Group (MUFG), would purchase 10 to 
20 percent of Morgan Stanley and that Nomura Securities would 
buy both Lehman Brothers' Asian Division and its European and 
Middle Eastern Division are three early examples of Japanese 
financial firms with sufficient cash on the books taking 
advantage of American firms' hardships.  Other notable 
investment activity includes Sumitomo Mitsui Financial Group 
(SMFG)'s 100 billion yen ($95 billion in stock) financial 
assistance to Barclays PLC.  The early moves on the 
investment banking and securities side could be followed in 
the days and weeks to come with purchases of divisions on the 
insurance side.  Either way, events in the U.S. are changing 
the global face of Japanese financial companies.  END SUMMARY. 
 
--------------------------------------------- --------- 
GOLDEN OPPORTUNITIES FOR JAPANESE FINANCIALS TO EXPAND 
--------------------------------------------- --------- 
 
¶2. (SBU) The September 22 announcement that Mitsubishi UFJ 
would purchase a 10 to 20 percent stake of Morgan Stanley, a 
deal that could be valued at as much as $8.5 billion (pending 
pre-purchase due diligence by MUFG), was followed by Nomura 
Securities' September 22 and 23 announcements that it had out 
bid Barclays PLC for Lehman Brothers Asian Division (valued 
at $225 million) and European and Middle Eastern Division 
(value was not disclosed).  The financial troubles of the 
American firms presented MUFG and Nomura with opportunities 
to expand quickly and inexpensively their global presence.  A 
Nomura executive, following the Asia deal, described the 
purchase of Lehman Brothers' division as a 
"once-in-a-lifetime opportunity."  The purchase of both the 
Asian Division and the European and Middle Eastern Division 
adds up to 5,500 employees to Nomura's payroll, 
highly-skilled and profitable employees Nomura executives 
have indicated they intend to retain.  Bank analyst Yuki 
Honjo characterized the moves as the benefit of overly 
prudent behavior; "Japanese banks missed out on the financial 
party of the century because they were at home grounded," 
alluding to Japan's relative lack of exposure to sub-prime 
related losses. 
 
¶3. (U) Nomura's purchases expand its operations in Asia by 
adding offices in Australia and India, and in Europe and the 
Middle East with offices in Germany, the UK, Dubai, Kuwait, 
and Qatar.  Nomura has a significant presence in most of 
these places, particularly in Asia, but the acquisitions 
include first-rate talent and expertise they now lack.  The 
purchase also keeps Lehman Brothers' Asian Division and 
European and Middle Eastern Division out of the hands of 
other competitors and is part of Nomura's strategy to 
increase revenue from global operations to over 30 percent of 
total revenues by 2011. 
 
 
TOKYO 00002679  002 OF 003 
 
 
------------------ 
MONEY ALSO FLOWING 
------------------ 
 
¶4. (U) Japanese financial companies are also injecting funds 
into troubled firms in the U.S. and UK.  MUFG's plans to buy 
10 to 20 percent of Morgan Stanley was followed by Sumitomo 
Mitsui Financial Group's (SMFG) September 23 announcement it 
is providing 100 billion yen to Barclays PLC, the same firm 
that lost out to Nomura for Lehman Brothers' assets in Asia. 
 
 
¶5. (SBU) Some journalists in Japan and even an editorial in 
the Financial Times are claiming Japan is now reviving the 
role of the U.S. when its financial firms helped bail out 
Japanese financial companies during the 1990s real estate-led 
financial crisis.  While commentary blaming the United States 
for the global financial system's woes has been muted, there 
is an underlying feeling of "America getting its just 
desserts" for developments over the last ten years. 
Commentators point out Japan's banks have cash on their 
balance sheets and that U.S. firms need the money. 
 
--------------------------------------------- --- 
ANNOUNCEMENTS IN THE INSURANCE SECTOR TO FOLLOW? 
--------------------------------------------- --- 
 
¶6. (SBU) Executives of international and domestic insurers in 
Japan were tracing out possible industry acquisitions within 
hours of the September 16 announcement of the New York Fed's 
$85 billion line of credit to AIG.  AIG has seven life, 
non-life, and reinsurance companies in Japan, as well as 
three investment management companies and one securities 
house.  AIG's life insurance operations constitute about 
one-quarter of its global life insurance business, and its 
Japan operations employ about 26,000 of its 116,000 total 
direct employees. 
 
¶7. (SBU) Media here report all of AIG's insurance operations 
in Japan appear healthy, with good revenue and stable 
management.  Due to insurance regulations, each of AIG's 
insurance subsidiaries maintains a capital reserve for its 
own products. 
 
¶8. (SBU) Domestic insurers are showing interest in acquiring 
AIG subsidiaries, but that interest is tempered by the 
unknowns surrounding the bailout.  Some subsidiaries are 
believed to carry AIG stock on their balance sheets, for 
example, which has led to press speculation about how the 
companies' values may have changed with AIG's stock tumble. 
Japanese consumers also put an extremely high premium on 
safety and security, which means the bailout has damaged 
AIG's brand.  To reassure consumers, AIG took out full-page 
advertisements in Japanese newspapers over the September 
21-22 weekend, but as one company executive told an Embassy 
official, "No one wants to do business with us right now." 
While sales may be in the works, AIG's $85 billion line of 
credit appears to have kept the pressure off the company and 
possible suitors to rush into deals. 
 
TOKYO 00002679  003 OF 003 
 
 
 
-------------------------- 
ROOM FOR CHEER AMID GLOOM? 
-------------------------- 
 
¶9. (SBU) Japanese financial firms' acquisitions could help 
them regain a certain measure of the respect they lost during 
Japan's 1990s financial crisis.  Calling the purchases a 
once-in-a-generation opportunity, Kenichi Watanabe, Nomura's 
President and Chief Executive said, "our ability to 
capitalize on this opportunity in spite of such volatile 
markets reflects our financial strength and demonstrates how 
well we have managed the financial crisis."  Nomura, SMFG, 
and MUFG's oft-criticized, low yield cash reserves now 
provide a platform for Japanese banks to buy these assets at 
steep discounts.  These transactions should not only result 
in better returns for the firms in the years ahead, but also 
potentially raise the profiles of Nomura, SMFG and MUFG on 
the global banking scene.  The question remains, though, of 
what these Japanese firms have learned from their mistakes of 
the past. 
SCHIEFFER