Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Late on Christmas Day, news leaked out into the financial media that regional bank <a href="https://www.smartkarma.com/entities/fukui-bank-ltd" target="_blank" data-smartkarma-citation="entities:9011:1" rel="noopener">Fukui Bank (8362 JP)</a> may be in advanced negotiations with unlisted secondary regional bank Fukuho Bank to take it over, initially as a majority-owned subsidiary.  Both banks are from Fukui Prefecture in the Hokuriku Region facing the Sea of Japan.  With a combined market share in Fukui Prefecture of around 36% for deposits and 49% for loans, the banks would likely need to invoke the exemptions under the recently approved law permitting banks from the same prefecture to merge without falling afoul of Japan’s anti-monopoly laws.While Fukui Bank’s share price has outperformed the Topix Banks Index in CY2020, this is damning the stock with faint praise.  Foreign investors would be well advised to steer clear.  This is not a run-of-the-mill case of a strong local bank absorbing a smaller, weaker rival.  Far from it.  Both banks have a long history of credit problems, erratic profitability and weakening performance ratios.While the takeover would no doubt have the blessing of the Suga Administration which has been actively promoting a reduction in the number of regional banks, it is difficult to see the economic rationale for the takeover.  Skeptics might suggest this is little more than an opportunity for the banks  -  should they eventually decide to go for a full merger  -  to revalue their head offices, generate one-time ‘windfall profits’ to artificially boost capital and thereby allow Fukuho Bank to repay the ¥6 billion in public funds that it still owes.  And then?  The risk for investors is a reversion by both banks to sub-par operational performance.Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2021.

Late on Christmas Day, news leaked out into the financial media that regional bank Fukui Bank (8362 JP) may be in advanced negotiations with unlisted secondary regional bank Fukuho Bank to take it over, initially as a majority-owned subsidiary.  Both banks are from Fukui Prefecture in the Hokuriku Region facing the Sea of Japan.  With a combined market share in Fukui Prefecture of around 36% for deposits and 49% for loans, the banks would likely need to invoke the exemptions under the recently approved law permitting banks from the same prefecture to merge without falling afoul of Japan’s anti-monopoly laws.While Fukui Bank’s share price has outperformed the Topix Banks Index in CY2020, this is damning the stock with faint praise.  Foreign investors would be well advised to steer clear.  This is not a run-of-the-mill case of a strong local bank absorbing a smaller, weaker rival.  Far from it.  Both banks have a long history of credit problems, erratic profitability and weakening performance ratios.While the takeover would no doubt have the blessing of the Suga Administration which has been actively promoting a reduction in the number of regional banks, it is difficult to see the economic rationale for the takeover.  Skeptics might suggest this is little more than an opportunity for the banks  -  should they eventually decide to go for a full merger  -  to revalue their head offices, generate one-time ‘windfall profits’ to artificially boost capital and thereby allow Fukuho Bank to repay the ¥6 billion in public funds that it still owes.  And then?  The risk for investors is a reversion by both banks to sub-par operational performance.Caveat Emptor! (May the Buyer Beware!) remains our advice to foreign investors considering investing in the Japanese banking sector in CY2021.

Fukui Bank (8362 JP):  On Santa's List: Fukuho-Ho-Ho !

Japan

The Fukui Bank, Ltd. is a regional bank based in Fukui prefecture. The Bank provides banking services such as deposits, loans, foreign exchange transactions, and securities investments. The Fukui Bank also provides financial services such as leasing, credit cards, and letter of credit.

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Fukui Bank (8362 JP): On Santa's List: Fukuho-Ho-Ho !

On Christmas Day, it was reported that Fukui Bank (8362 JP) may be in negotiations with Fukuho Bank to take it over as a majority-owned...

J. Brian Waterhouse