In the three months Tom Hartnett has been the head of fixed income sales and trading at Mizuho Securities USA, he’s been focused on getting the word out about his new employer.
One question he often gets: “How do you pronounce Mizuho?”
The confusion reflects Mizuho’s relatively low profile on Wall Street, for better and for worse. The Japanese bank has little of the baggage that typically accompanies bigger players in the fixed income market, but it doesn’t have the brand name either. Yet.
The bank is hiring, pushing new products, and rising in the rankings. The aim, according to Jerry Rizzieri, CEO of Mizuho Securities USA, is to make headway in the largest revenue pool in the world.
“We compete every day with the bulge bracket firms, but we’re nowhere near their size,” he told Business Insider.
“We’re in the fourth or fifth inning of our buildout, and still expanding our product mix, whereas most of our competitors have been at this a lot longer and have much more infrastructure, and as a result, much more to lose. We’re in a different spot.”
It starts here
Mizuho’s efforts in fixed income coincide with an investment in the debt capital markets business. In 2015, Mizuho acquired a $36.5 billion North American loan book from Royal Bank of Scotland for around $3 billion.
The transaction introduced more than 100 new investment-grade corporate client names, according to Jennifer Powers and James Shepard, Mizuho’s coheads of US debt capital markets, and led to “up-tiering” with existing Mizuho names. In other words, the transaction helped put Mizuho on the map in the US with a whole bunch of clients, giving it a platform to go hustle for bigger roles on top transactions.
“What Mizuho has done to continually upgrade and rebrand ourselves is to not just be punching a ticket, but to make a difference,” Powers told Business Insider. “Because it’s a competitive landscape, and if we’re just going to be another also-ran bookrunner as part of a syndicate, that doesn’t really help us or the client.”
That approach is seeing results. The bank ranks 10th in US investment-grade debt capital markets volume for the year to November 8, according to Thomson Reuters, wedged between Deutsche Bank and RBC Capital Markets. That compares with 12th in the same period a year ago, and 16th the year before that.
This benefits the sales and trading business. Working on a steady stream of new bond deals helps make Mizuho relevant to investors looking to buy in and out of the market.
“There is a virtuous circle,” Powers said. “When the new-issue machine is humming, that informs the secondary side, which makes our salesmen and traders more relevant to accounts, which then enables us to bring back more colour to our corporate clients.”
One senior trader at a big fund manager who had just met with Mizuho salespeople and heard their pitch told Business Insider that the Japanese bank “got people’s attention” thanks to its standing in debt capital markets.
“That’s the way to do it,” he said.
One of the key constraints for many banks right now is the size of their balance sheets. They can’t write much new business, and in many cases they’re shrinking their balance sheets dramatically. At Mizuho, the opposite is true.
“We don’t have the burden of having much legacy balance sheet, so we can be more flexible than some of our competitors can,” Hartnett said.
This really matters in the derivatives business, which takes up a lot of balance sheet. In particular, Mizuho is focused on winning business in interest rate derivatives, cross-currency derivatives, and corporate derivative solutions.
Then there’s the Asia angle. Mizuho ranked second for fees in Asia Pacific in the first nine months of the year, behind Morgan Stanley, and is in a great position to benefit from the flow of money from Japan to the US.
“There is now latent demand coming out of Asia,” Shepard said. “We’re seeing significant overnight demand into the US from Japan, and elsewhere from Asia.”
Powers recounted a recent reverse roadshow — when investors take a trip to meet bond issuers — during which Asian investors were being more aggressive in asking for long-dated bond deals and for good allocations in these bonds.
“They were asking ‘Will you please do 30-years?’ That is unheard of,” she said. “They were asking for a good allocation.”
These tailwinds and the turbulent market conditions — just about everyone has made layoffs in fixed income recently — have made Mizuho an attractive option for those looking for a new home.
“In all of our businesses, including fixed income, our strategy is to keep adding more products and people in areas that benefit clients and revenue growth,” Rizzieri told Business Insider. “Since I joined Mizuho in 2010, we’ve been adding staff every year. We continued to add staff this year, and our plans for 2017 include more hiring.”
The firm made around a dozen hires in fixed income since Hartnett joined, and it’s expanding in just about every product line.
“Growth in and of itself is a very positive message for talent, so instead of trying to optimise or reorient, we are directly seeking growth both in terms of depth and dimension,” Hartnett said “We are expanding the perimeter. We have a unique opportunity to bring in talent that want to be a part of that momentum.”
Mizuho isn’t going to have it all its own way, of course. For a start, other firms are looking to step into the breach left behind by bulge-bracket banks.
“The group of banks just below the bulge bracket are seeing opportunities in the bulge bracket’s pullback from certain businesses and clients,” Kevin McPartland, head of research, market structure, and technology at Greenwich Associates, told Business Insider. “They can in many cases provide higher-touch service to clients that the biggest banks don’t see as profitable enough to service at that level.”
And there are more questions to ask about the Japanese bank beyond how to pronounce Mizuho. Japanese banks have been known to overexpand, then find the going harder than they expected.
“With a lot of the Asian guys, they come and go in US fixed income,” the senior fund management trader told Business Insider. “Nomura, Mitsubishi — same thing.”
And if banks are pulling out of business lines, maybe they’re onto something. Maybe what they have left behind should be left well alone.
Hartnett says these are “good questions” and has his responses ready. He cites a culture of balance sheet discipline at Mizuho, and notes that Mizuho is picking its spots.
“We’re not trying to be all things in all products to all investors, so we can avoid the situation where we onboard risks or activities that aren’t attractive,” he said.
Then there’s the big question: Isn’t the fixed income business broken?
Regulatory changes have made certain portions of the fixed income business unattractive, and it’s hard to find an example of a bond trading unit generating attractive returns. According to Hartnett, however, Mizuho has a chance to build something that makes sense.
“We have a mature understanding of the regulation, and so we have a unique chance to build a business in a completely coherent manner,” he said.
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