October 17, 2018 / 10:10 AM / a month ago

Breakingviews - Japanese banks sit quietly pretty in Saudi saga

Saudi Arabia's Energy Minister Khalid al-Falih meets with Japan's Foreign Minister Taro Kono at the Foreign Ministry in Tokyo, Japan May 7, 2018. REUTERS/Issei Kato

MUMBAI (Reuters Breakingviews) - Japan’s big banks may be hoping to benefit from the retreat of global rivals from Riyadh. The accusation that Saudi Arabia engaged in state-sponsored murder has led top U.S. and European bank bosses to pull out of attending next week’s Future Investment Initiative. For Mitsubishi UFJ Financial Group and Mizuho Financial Group, though, the fallout could present an opportunity to snag more of Saudi’s fee wallet. 

Led by JPMorgan boss Jamie Dimon, bank chiefs in the west have mostly opted to bail and take the moral high ground instead of chancing any pushback from their customers, employees, directors and peers in elite financial circles. HSBC, CEO John Flint, Standard Chartered’s Bill Winters, BNP Paribas Chairman Jean Lemierre and Credit Suisse’s Tidjane Thiam will all no longer attend the summit.

One big advantage for MUFG and Mizuho is that Japan doesn’t have the same culture of corporate protest. Whenever there is a moral crisis in the world that demands action from companies, Japan Inc doesn’t feel the same public pressure to distance itself. Even when it comes to deeply contentious issues at home, like changing the constitution or nuclear power, individuals who publicly demonstrate are often seen as oddballs. In that sense, Japanese firms are arguably better able to resist pressure from stakeholders.

The Tokyo-based banks slated for the Riyadh summit might be more interested in keeping sweet ties with Saudi given the country’s huge stake in SoftBank’s Vision Fund. MUFG and Mizuho were investors in the nearly $100 billion tech M&A war chest, according to multiple media reports earlier this year. 

Finally, if Saudi bears a grudge against those that embarrass the kingdom, MUFG and Mizuho stand to gain by staying put. They already rank in the top 10 earners of fees from Saudi this year, according to Refinitiv data. Over half a decade, the pair have been in the top five, earning a total $123 million. 

Most fees handed out in Saudi come from bonds and loans. And there are also potentially bigger paydays ahead with Crown Prince Mohammed bin Salman’s ongoing economic reforms, which could eventually revive a stock market listing for oil giant Saudi Aramco, something Tokyo lobbied hard to host.

For the Japanese, it’s a low risk - if morally questionable - gamble to keep Riyadh happy. 

Breakingviews

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