Japanese Rush on U.S. Assets

By Reuters -  |  Posted 2008-09-23 Print this article Print

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson stressed to the U.S. Congress the dire consequences of failing to move quickly on the plan for the government to buy up hundreds of billions of dollars of tainted mortgage-related securities. Members of the U.S. Congress and Senate express their understanding for fast-action, but want safeguards in place and more details on what the $700 billion bailout will include.


Japanese firms are leading the rush to acquire U.S. investment banking assets. Nomura Holdings (8604.T: Quote, Profile, Research, Stock Buzz) agreed to buy bankrupt Lehman Brothers' equities and investment banking business in Europe and the Middle East, and said it expects to retain "a significant proportion" of the 2,500 staff employed in the businesses.

Previously, Japan's top bank, Mitsubishi UFJ Financial Group Inc (8306.T: Quote, Profile, Research, Stock Buzz), said it would buy up to 20 percent of Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) for as much as $8.5 billion, and Nomura bought Lehman's franchise in Japan and Australia, with some 3,000 employees.

Speculation is growing that Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz), which like Morgan Stanley is transforming itself into a commercial bank, might turn to Sumitomo Mitsui Financial Group (SMFG) (8316.T: Quote, Profile, Research, Stock Buzz), Japan's No. 3 bank, with which it has a long relationship.

"SMFG has always had very close ties with Goldman Sachs, so you can't rule out some sort of a more comprehensive tie-up there," said Jason Rogers, credit analyst at Barclays Capital.

Insurance giant American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) should have a list of assets it wants to sell by next week, new Chief Executive Edward Liddy said. Canada's Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz) was among those weighing a bid for Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz), a source familiar with the situation said.

Singapore sovereign fund GIC said it still has plenty of cash after investing nearly $18 billion in UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and would consider opportunities to invest in U.S. distressed assets.


Some analysts and investors harbor deepening doubts over whether Paulson and Bernanke can steer the world's largest economy out of its worst crisis of confidence since the Great Depression of the 1930s.

"You two gentlemen have been wrong about the housing crisis, missed the leverage problem, and understated the derivative issue," said Barry Ritholtz, director of research at Fusion IQ, an investment firm in New York. "Indeed, you two have been wrong about nearly everything since this crisis began years ago. Why should we trust your judgment on the largest bailout in American history?"

Banks remained wary of lending to each other. Overnight dollar borrowing rates remained almost one percentage point above the Federal Reserve's 2 percent target.

Britain's biggest home lender, HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), which sealed a takeover by UK bank Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) last week, was down more than 10 percent after weak housing data sparked worries that its woes could linger despite the takeover.

"The risk has been transferred, it hasn't gone away," said Mike Trippitt, analyst at Oriel Securities.

(Writing by Jason Szep; additional reporting by Jason Neely in London, Glenn Somerville, John Poirier and Donna Smith in Washington; editing by John Wallace)


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