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[TOKYO] Sumitomo Mitsui Financial Group Inc plans to add about 250 positions to its securities business abroad over the next three years to boost investment banking and make up for slumping loan profitability at home.
The Tokyo-based bank will increase overseas headcount at its SMBC Nikko Securities Inc unit from the current 500 by hiring and redeploying staff including bankers who can underwrite bond and stock sales and advise on mergers, said Narutoshi Terauchi, general manager of planning at Sumitomo Mitsui's international business department.
"We plan to be flexible in hiring specialists at each of our offices around the world," Mr Terauchi said in an interview in Tokyo last week. He expects gross profit from the securities business in the US and Europe will climb to about 50 billion yen (S$610 million) by March 2020 from around 30 billion yen in the year ended March.
Japan's biggest banks are expanding abroad and diversifying operations as record-low interest rates crimp earnings from domestic lending. Sumitomo Mitsui was a relative latecomer compared with peers Mitsubishi UFJ Financial Group Inc and Mizuho Financial Group Inc when it began developing its international securities business in 2010.
"Mizuho is already performing well in its securities business, and Sumitomo Mitsui has some potential to catch up," said Michael Makdad, a bank analyst in Tokyo at Haitong International Securities Group Ltd.
"It's a good move, but I won't say it's successful until I see the fruits."
SMBC Nikko will seek to work on more capital markets deals and mergers by tapping the lending unit's corporate clients, Mr Terauchi said.
The move follows an organisational overhaul in April in which Sumitomo Mitsui formed four units - retail, wholesale, international and global markets - to improve cooperation and speed up decision-making across the group.
"With customers where the bank is providing credit we want to make sure we capture as much of the profit that can be generated from that customer - be it securities, currency or derivatives," Mr Terauchi said.
"The strongest synergy with commercial banking is in bonds, so we want to expand this business." Sumitomo Mitsui is ranked 19th among underwriters of US investment grade debt this year, compared with 17th for all of 2016, according to data compiled by Bloomberg. MUFG is 13th and Mizuho is 15th. For global cross-border mergers advisory, Sumitomo Mitsui is 36th, up from 66th last year, the data show.
Group President Takeshi Kunibe said in a May interview that Sumitomo Mitsui needs to expand abroad to maintain annual profit of 700 billion yen, given the squeeze on loan margins. Relatively strong economic growth in the US is the best opportunity for Japan's second-largest lender by market value to do this, he said.
In Europe, similar to its efforts in the US, Sumitomo Mitsui is seeking to get its banking and brokerage operations to work more closely together, Mr Terauchi said. This month, the company announced plans to open banking and securities units in Frankfurt to secure business after the UK eventually leaves the European Union. It will also set up a branch in London.