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Obama Charging America Ahead with Chinese and Japanese Investment

January 25, 2011

January 25, 2011 ASHEHAM OP-ED.

How do we get from here to there? How do we create more jobs? Through investment and expansion in infrastructure. This is how it will happen.

House leader, (R) Eric Cantor has stated yesterday, ” There will not be a federal bailout of the states.” His comment follows on the heels of Fed Chairman Ben Bernanke ruling out a central-bank bailout earlier this month. So, this reduces the options for states as to how to balance their budgets and deal with their municipal bond problems and underfunded pensions. Here in California, new Governor Jerry Brown (D), has proposed $12 billion in program cuts to address the states $26 billion dollar shortfall. Illinois has raised taxes. The real solution is to increase revenues and that can only be accomplished through job growth. Our entire system is based on taxes to support education, police, firemen, teachers, and infrastructure. We may not like it, but this is the way it is. As hard as Republicans try to circumvent paying their fair share, this is the entrenched system. So, we need to do everything possible to create jobs, jobs, and more jobs as this will rejuvenate the system. How will that happen?

I will make a prediction right now. The President will propose large scale FDR New Deal-like solutions tonight. There are five key areas he already mentioned over the weekend where he will place the administration’s focus:

1. Innovation
2. Infrastructure
3. Education
4. Debt Reduction
5. Deficit Reduction

Of those five, the top two will be the areas where job growth will take root and grow. Tax incentives will be one of the tools used to spur investment. There may be some government spending on infrastructure. That will be offset by cutting ‘outmoded’ programs. It is a balancing act to be sure, but this will be the way ahead. The President seems to be refocused and along with enjoying some small victories over the past six weeks, he is juiced up; and with his POTUS hat on, he will likely hit a homerun tonight. The post-speech Republican criticism will be seen as negative in contrast to the upbeat message of the President charging America ahead. Americans are tired of rhetoric and want to rebuild their lives. Anything that detracts from that fact I think will be rejected. As long as the President holds the Democrat senate majority, he will be able to push his agenda forward. In fact, I predict that the House Republicans will expend too much energy this year doing too much complaining and will end up being largely frustrated while the President will pile up one small victory after another.

The real question is where will the investment dollars come from when many multi-national corporations and the too-big-to-fail banks are investing overseas? The answer is investment will come from the two countries that hold large amounts of our treasury paper: China and Japan

While I am not in favor of the recent trade agreements the Obama administration has made with India and China, these are made deals. The two countries are the manufacturing engines of the world today with growing middle classes who want to purchase goods. Obama is banking on the notion they will want American goods. And in this mix of globalization there is a new factor: China is opening banks right here in the United States starting with Chicago. The move is calculated and reminiscent of Japan in the 80s during the Reagan years. Here is a look at where Japan’s focus is today and how China is likely to follow.

Just a note: I have been doing business with United Bank of California for over ten years. They were one of the only banks in California that did not make sub-prime loans.

WSJ – July 26, 2010
Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group—Japan’s two leading banks, with more than $3.7 trillion of assets combined—are aggressively ramping up their expansion strategy outside the country. MUFG, which already has a foothold in the U.S. with California’s Union Bank, aims to become one of the top 10 commercial banks in the U.S. via further acquisitions. Hiroshi Minoura, the global head of international banking at SMFG, says, “It’s difficult to expand business with organic growth alone.”

There is a general sense of déjà vu—think back to the 1980s, when Fuji Bank (now folded into Mizuho Financial Group) acquired U.S. Heller Financial for $1.2 billion. Sanwa Bank (a former part of Mitsubishi UFJ) bought the Lloyds Bank of California, and Dai-Ichi Kangyo Bank (formerly part of Mizuho) purchased 60% of CIT Group Holdings for about $1.4 billion.

Not one of the above purchases is still intact. Japanese banks were forced to scale back overseas businesses and sell assets in order to deal with swelling bad loans at home. Only Union Bank—then known as the Bank of California—remains under the umbrella of a Japanese bank, after Mitsubishi Bank (a former part of MUFG) took a stake in it in 1984.

Thanks to this purchase, MUFG is the only Japanese megabank with a sizable presence in the U.S. retail-banking market. The bank recently bought two small, failed banks to help Union Bank build a retail customer base on the West Coast.

Despite the global ambitions, Japan’s leading banks in general remain extremely conservative institutions, with jobs-for-life still the norm. Both MUFG and SMFG have all-male, all-Japanese boards of directors. Whether they can successfully adapt their still-insular cultures to the cultural melting pot of America is a key question.

“How well Japanese banks can manage local operations is key,” says Nana Otsuki, analyst at UBS Securities, who added that whether Japanese banks can leave day-to-day operations to local staff and whether they can shift into performance-based pay structures are crucial factors in determining their success or failure.

Today in the WSJ: Chinese banks are looking to expand. CCB International, the investment-banking arm of China Construction Bank, plans to open a New York office this year, a person familiar with the situation said. Currently, it has offices in Hong Kong and London.

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