Sumitomo Mitsui Financial Group's investment into US Treasuries is likely to boost the bank's profits again next year as yields on the paper have further to fall, the president of Japan's third-largest lender by assets said on Thursday. "Yields on Japanese government bonds have not moved much, but we are seeing sharp yield drops in the United States and we have been making gains from Treasury trading," Koichi Miyata told Reuters in an interview, with his comments embargoed until Friday.
Amid worries about Europe's deepening debt crisis, investors have been seeking the perceived safety of US Treasuries, driving up their prices and pushing down yields. At the start of the financial year that began in April, SMFG and rival Japanese banks had expected to suffer sharp falls in bond trading gains after the previous bumper year, but the eurozone's woes and global economic slowdown mean they have continued to see healthy profits from the sector.
The 10-year Treasury yield fell the most on Wednesday since November 9, keeping on track for its largest yearly drop since 2008. Miyata, 58, took over the helm of SMFG in a reshuffle in April this year. Climbing through the ranks of the bank's dealing room, Miyata, known for his soft-spoken and genteel manner, was behind market-savvy moves that saved the bank from the US subprime woes.
The rise of the dealing room boss to the top post comes at a time when his bank and rival Japanese lenders have become increasingly dependent on earnings from market trading as their core lending activities remain sluggish. But Miyata said he tries not to put unnecessary pressure on dealers in case they should take risky bets on the market.
"We see chances in US Treasuries now, but we might get out of the sector before you notice ... that's what we did at the time of the subprime (problems)," he said. Miyata also said he was bracing for the possibility that Europe's debt crisis could ensnare the region's healthier economies like Germany's.
"German government bonds are seen like the pole star, a safe-haven and a benchmark for other bonds," he said. "But I think there's the possibility that they will be no longer be seen that way when Germany has to shoulder the burden of the region's problems."
Miyata said European banks rushing to trim their balance sheets has provided an opportunity for Japanese lenders to push for further expansion overseas by mopping up customers and assets. SMFG last month agreed to buy project finance loans from Bank of Ireland for 470 million euros.
But he said his bank is very cautious about acquisitions and that it is especially vigilant to conditions in funding markets, echoing the view expressed by head of rival Mizuho Financial Group. "We have a relative advantage in terms of credit status but markets themselves have been shrinking and we have to pay extra attention to securing funding," he said.
"We have been offered asset sales totalling 7 trillion yen ($89.8 billion) in the current financial year, but we have bought only 100 billion yen's worth so far." Miyata also said SMFG is not interested in acquiring banks in the United States, citing the introduction of tougher regulation and smoldering mortgage issues in the country.
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