Trlpc mizuhos rbs portfolio purchase tests loan relationships

← Homepage

Mizuho Bank's purchase of Royal Bank of Scotland's US and Canadian loan portfolio in a deal worth $3 billion is causing a stir with banks and blue-chip borrowers in the US investment-grade loan market. US companies are adjusting to the Japanese bank's push for a bigger role in North America, and second tier banks are poised to snap up ancillary business in areas where RBS has traditionally been strong. As part of the asset purchase agreement, Mizuho is expected to hire roughly 200 employees from RBS as early as Tuesday in areas such as capital markets, which includes loan and bond specialists. The hiring is aimed at boosting Mizuho's profile in the US, where RBS was seen as having a deeper franchise. Mizuho and RBS declined to comment. Dow Chemical could not immediately be reached. As Mizuho, Japan's second-largest lender by assets, builds and deepens new and existing relationships in the US, banks and companies are adjusting as lending syndicates reshuffle and changing expectations about what to expect in terms of relationship lending and accessing secondary business, known as cross-sell."Every bank that exits the market creates opportunities for its competitors," a banker said. DOW'S DILEMMA In early March, less than a week after the Mizuho's purchase was announced, specialty chemical manufacturer Dow Chemical Co asked lenders to refinance and extend maturities on a $5 billion, five-year revolving credit that the company signed in 2011.

Citigroup and HSBC Bank were leading the deal with commitments of $328 million, each. Mizuho and RBS had both joined with commitments of $250 million each. Mizuho's asset purchase suggested that Mizuho would absorb RBS's loan commitment, which would have doubled its exposure to $500 million, significantly higher than Mizuho's existing level and put the bank in a dominant position in the syndicate with a larger commitment than either lead bank."From a theoretical standpoint, I don't know whether a bank or a company would be comfortable with a $500 million exposure right off the bat," another banking source said. Mizuho had also absorbed a bilateral loan from RBS to Dow Chemical which further increased its exposure to the chemical firm, sources said. The level of exposure in syndicated loans is significant as it dictates the hierarchy of relationships between borrowers and their banks and determines the amount of ancillary business, such as derivatives, cash management and bond and equity issuances which banks depend on to subsidise low-priced revolving credits.

"Companies are strict about keeping the pecking order in their revolvers," a second banker said. "It goes back to how these companies pay the banks back with ancillary business."In the case of Dow Chemical however, Mizuho stayed at a lower level with a commitment of $240 million, rather than increasing its exposure to $500 million. Other banks in the syndicate offered to increase their commitments to Dow Chemical in a bid to win the ancillary business that used to be offered in areas that RBS was strong, including European cash management and capital markets, sources said. Dow Chemical's management liked that option, which allowed it to preserve its existing relationship hierarchy and even invite new banks including Credit Agricole and Riyad Bank to its core group. Both of the lead banks and a handful of other lenders absorbed RBS's exposure, which allowed them to increase their commitments and thus their relevance to the company.

Dow Chemical's refinancing was one of the first deals to launch after Mizuho's purchase of RBS assets. It was also one of the first times that a major company has had to assess whether to boost its relationship with a bank in its group or reassign the exposure across its bank group, sources said."It's all about relationship," the first banker said. "And relationship means cross-sell."MIZUHO'S PUSH Mizuho said on February 26 that it would buy RBS's $36.5 billion of loan commitments, which included future pledges as well as $3.2 billion of loans that had already been extended. The deal is likely to close around October 2015. Mizuho's purchase follows an aggressive strategy of expansion by Japanese lenders in the US. Highly liquid Japanese banks have been actively buying assets and making loans overseas to compensate for a weak domestic market. Mizuho will not double its commitments on every loan that RBS has made as not every client may be comfortable promoting Mizuho to a lead role and giving the bank RBS' ancillary business, sources said. Dow Chemical's new bank group includes leads Citigroup and HSBC at $320 million each and Bank of America Merrill Lynch, Barclays, BNP Paribas, Deutsche Bank, JP Morgan, Mizuho, Sumitomo Mitsui and MUFG with $240 million each. BBVA, Credit Agricole, Goldman Sachs and ING Bank and Morgan Stanley, RBC, Santander, Societe Generale and Standard Chartered are also lending $160 million each. Bangkok Bank, Bayerische Landesbank, Intesa SanPaolo, Riyad Bank, Bank of Nova Scotia and Wells Fargo have committed $125 million each, Bank of New York Mellon and Northern Trust are providing $75 million each and Fifth Third Bank and Itau Banco are lending $50 million each.