Japan's Sumitomo Mitsui Financial Group (SMFG) (8316.T) and Sumitomo Corp (8053.T) are buying the aircraft-leasing business of Royal Bank of Scotland (RBS.L) in a deal worth $7.3 billion, in the most aggressive acquisition by a Japanese lender since European banks began offloading non-core assets.
With little exposure to Europe's two-year-old sovereign debt crisis, SMFG, Japan's third-largest bank by assets, and its local rivals are well positioned to mop up customers and assets as European lenders seek to repair their balance sheets.
"We are likely to see more acquisitions of overseas assets by Japanese banks as European rivals continue to shed their non-core assets," said a banking analyst at a European investment bank. He declined to be named because his bank has been also selling its assets.
RBS Aviation is being sold as RBS shrinks back to its core British retail and commercial banking business. It marks the biggest disposal since the bank started aggressively downsizing when the British taxpayer was forced to rescue it just over three years ago, giving the state 83 percent ownership.
SMFG will take around 70 percent of RBS Aviation Capital, while trading company Sumitomo will hold the rest, the two firms said in a statement. The two already run an aircraft-leasing joint venture.
For SMFG, the deal gives a boost to its leasing business, which has bigger profit margins than straight corporate loans, as the bank continues to see weak lending demand at home due to a sluggish economy.
GROWING ASIAN MARKET
The two companies said they would tap a growing aviation industry in Asia's emerging markets and the acquisition of RBS's business helps expand their overseas presence in the field.
The companies did not announce the cost of the acquisition, but said the assets of the RBS aircraft business were valued at $7.2 billion. A source familiar with the matter had earlier put the deal at $7.3 billion.
RBS also confirmed the deal in a statement.
"Reaching agreement on a deal of this scale in such a volatile market is a significant success for our non-core division," RBS's finance director Bruce Van Saun said in a statement.
"This transaction further evidences our progress in reducing our non-core portfolio and returning the group to a position of strength."
In 2010, Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank, agreed to buy RBS's project-finance assets in Europe, the Middle East and Africa worth 3.3 billion pounds. MUFG also acquired about 30 project finance bankers from RBS.
Since early last year, Japanese banks say they have been offered tens of billions of dollars worth of assets by European rivals under pressure to meet new capital rules and ease funding strains amid the region's deepening debt crisis.
In November, SMFG agreed to buy project finance loans from Bank of Ireland (BKIR.I) for 470 million euros.
COMPETITION FOR DEAL
SMFG had been vying with China Development Bank and U.S. bank Wells Fargo (WFC.N) for the RBS aviation business, sources have said. Reuters had reported SMFG and CDB were slugging it out in the final days of the auction.
Dublin-based RBS Aviation is one of the world's top five commercial airline leasing firms. It owns, manages or has orders for 329 aircraft, leasing to 65 airlines in 24 countries.
It has a team of 69 executives in Dublin, New York, Hong Kong, Beijing, Shanghai, Singapore, Tokyo, Seattle and Toulouse. The business last year had a book value of $6.8 billion.
RBS tried to sell the business in 2009 but scrapped that auction a year later amid difficult market conditions.
Aircraft leasing is seen as attractive as it offers the prospect of steady returns and cash flow, with the relative security of hard assets that are easy to move around to tap growth wherever it emerges.
RBS was advised on the sale by in-house investment bankers, Goldman Sachs (GS.N) and law firm Clifford Chance, while SMFG was advised by Nikko, the in-house investment banking arm of Sumitomo, Barclays Capital and law firm Milbank Tweed.
($1 = 76.7100 Japanese yen)
(Additional reporting by Shounak Dasgupta in Bangalore and Taiga Uranaka in Tokyo; Editing by Alex Richardson and Muralikumar Anantharaman)