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 !

Doing bespoke work since 2002....., Custom Products Group

Patrick Hansen

Doing bespoke work since 2002.....

Custom Products Group

Custom Products was started 14 years ago at Lehman Brothers by current co-founder Patrick Hansen, CFA. After 3 years at Lehman, Patrick moved the team to Macquarie Securities where Simon Rigney (co-founder) joined. 3 years ago we took Custom Products independent. 

Our core strength can be summed up three words. 1- Customization - we have very little off the shelf products and most work is done on a one on one bespoke basis. 2- Speed - We pride ourselves in our ability to get requests back to the client very quickly. 3- Confidentiality - We do not redistribute. There is no grace period where we wait a week and then mass blast. Any request stops with that client.

Thematic (Sector/Industry)

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap that rebounded were <a href="https://www.smartkarma.com/entities/18346" target="_blank" data-smartkarma-citation="entities:18346:1">Nipro Corp (8086 JP)</a>, <a href="https://www.smartkarma.com/entities/11909" target="_blank" data-smartkarma-citation="entities:11909:1">Mitsubishi Logistics Corp (9301 JP)</a> and <a href="https://www.smartkarma.com/entities/18567" target="_blank" data-smartkarma-citation="entities:18567:1">Nissin Electric Co Ltd (6641 JP)</a>. We identified the rebounds using RSI or Relative Strength Index, which compares gains and losses over a specific period. <h2>Screen Criteria</h2><ol>
<li>Mkt-cap is greater than ¥50bn and there are only 2 or fewer Analyst with coverage</li>
<li>Current RSI (1 month)…</li>
</ol>

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap that rebounded were Nipro Corp (8086 JP), Mitsubishi Logistics Corp (9301 JP) and Nissin Electric Co Ltd (6641 JP). We identified the rebounds using RSI or Relative Strength Index, which compares gains and losses over a specific period. Screen Criteria
Mkt-cap is greater than ¥50bn and there are only 2 or fewer Analyst with coverage
Current RSI (1 month)…


Lesser Known Names that Rebounded in September....

Global Gaming and Casinos Industry Specialist, Casino Business Review LLC

Howard J Klein

Global Gaming and Casinos Industry Specialist

<ul><li>Offerings of equities and convertible bonds totaled 720 billion yen over the first nine months of '16 and the trend continues unabated. Its the lowest level of new offerings in four years.</li><li>Meanwhile, stock buybacks have soared to a record 4.35 trillion yen (USD$41.8 bn)--the most in history presumably to shore up capital efficiency.</li><li>Opponents in principle claim buybacks inhibit growth, and investment and also impede wage growth which in turn, keeps spending sluggish.</li><li>Do Japan's persistent low GDP numbers reflect some of this corporate policy strategies? Does the same phenomenon apply to the US? </li></ul>

Offerings of equities and convertible bonds totaled 720 billion yen over the first nine months of '16 and the trend continues unabated. Its the lowest level of new offerings in four years.Meanwhile, stock buybacks have soared to a record 4.35 trillion yen (USD$41.8 bn)--the most in history presumably to shore up capital efficiency.Opponents in principle claim buybacks inhibit growth, and investment and also impede wage growth which in turn, keeps spending sluggish.Do Japan's persistent low GDP numbers reflect some of this corporate policy strategies? Does the same phenomenon apply to the US? 

Could Japan's Aggressive Stock Buyback Spree Slow an Economic Rebound?

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

On Jan. 19, <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba Corp (6502 JP)</a> reported that it will likely book a combined noncash charge of up to JPY 700 billion, mainly for goodwill impairments on the U.S. nuclear business acquisition through its U.S. subsidiary, Westinghouse. The scale of impairment significantly exceeded the market expectation at the end of last year, as it is likely to push Toshiba’s thin net equity position of JPY 360 billion into a deficit, with potential delisting from the Tokyo Stock Exchange in sight.As the second-largest diversified industry group after Hitachi, Toshiba maintains a membership status within the Mitsui “zaibatsu” group, a cross-industry alliance of leading domestic companies dating back to the 16th century. According to a press report, as of the end of September 2016, Toshiba maintains a total of JPY 798.7 billion in loans outstanding, consisting of: (1) JPY 110 billion for Sumitomo Mitsui Banking Corporation (<a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial Group (8316 JP)</a>); (2) JPY 110 billion for Mizuho Bank (<a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group Inc (8411 JP)</a>); (3) JPY 102 billion for Bank of Tokyo Mitsubishi UFJ and Mitsubishi UFJ Trust (<a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ Financial Gro (8306 JP)</a>); and (4) JPY 75 billion for Sumitomo Mitsui Trust Bank (<a href="https://www.smartkarma.com/entities/19450" target="_blank" data-smartkarma-citation="entities:19450:1">Sumitomo Mitsui Trust Holdings (8309 JP)</a>).Anlayst: Mari Kumagai

On Jan. 19, Toshiba Corp (6502 JP) reported that it will likely book a combined noncash charge of up to JPY 700 billion, mainly for goodwill impairments on the U.S. nuclear business acquisition through its U.S. subsidiary, Westinghouse. The scale of impairment significantly exceeded the market expectation at the end of last year, as it is likely to push Toshiba’s thin net equity position of JPY 360 billion into a deficit, with potential delisting from the Tokyo Stock Exchange in sight.As the second-largest diversified industry group after Hitachi, Toshiba maintains a membership status within the Mitsui “zaibatsu” group, a cross-industry alliance of leading domestic companies dating back to the 16th century. According to a press report, as of the end of September 2016, Toshiba maintains a total of JPY 798.7 billion in loans outstanding, consisting of: (1) JPY 110 billion for Sumitomo Mitsui Banking Corporation (Sumitomo Mitsui Financial Group (8316 JP)); (2) JPY 110 billion for Mizuho Bank (Mizuho Financial Group Inc (8411 JP)); (3) JPY 102 billion for Bank of Tokyo Mitsubishi UFJ and Mitsubishi UFJ Trust (Mitsubishi UFJ Financial Gro (8306 JP)); and (4) JPY 75 billion for Sumitomo Mitsui Trust Bank (Sumitomo Mitsui Trust Holdings (8309 JP)).Anlayst: Mari Kumagai

Minimal Impact From Larger Credit Loss on Toshiba; Maintaining FVE for Major Japanese Banks

Four major banks under our coverage reported better-than-expected results, indicating an inflection point in their earning structure. In aggregate, of four major banks under our coverage, the numbers are similarly down across most metrics. On average, net income fell 11% from the year-ago period with operating income decreasing 19% from the year ago period. Momentum in trading and commission, both tracking the midcycle average, failed to offset lower net interest income, down 13% from the year-ago period to JPY 2,072 billion for the three major banks. Management for three major banks did not object to market consensus of JPY 300 billion negative earning impacts since the implementation of Bank of Japan's negative interest rate policy earlier this year. Management also maintained their full-year net profit forecast unchanged, citing their cautious stance after the election results. However, they also mentioned that further downside from the policy implementation is likely to be limited after the BoJ is transitioning its policy to control the yield curve instead.Our top pick will be <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi Ufj Financial Gro (8306 JP)</a> as it is best-positioned to benefit from its underappreciated global business exposure with about a quarter of its earning assets tied to U.S. markets. This excludes a 23% lucrative equity investment in Morgan Stanley. We will revise our fair value estimates with a detailed earnings note on each respective bank in coming weeks.Analyst: Mari Kumagai

Four major banks under our coverage reported better-than-expected results, indicating an inflection point in their earning structure. In aggregate, of four major banks under our coverage, the numbers are similarly down across most metrics. On average, net income fell 11% from the year-ago period with operating income decreasing 19% from the year ago period. Momentum in trading and commission, both tracking the midcycle average, failed to offset lower net interest income, down 13% from the year-ago period to JPY 2,072 billion for the three major banks. Management for three major banks did not object to market consensus of JPY 300 billion negative earning impacts since the implementation of Bank of Japan's negative interest rate policy earlier this year. Management also maintained their full-year net profit forecast unchanged, citing their cautious stance after the election results. However, they also mentioned that further downside from the policy implementation is likely to be limited after the BoJ is transitioning its policy to control the yield curve instead.Our top pick will be Mitsubishi Ufj Financial Gro (8306 JP) as it is best-positioned to benefit from its underappreciated global business exposure with about a quarter of its earning assets tied to U.S. markets. This excludes a 23% lucrative equity investment in Morgan Stanley. We will revise our fair value estimates with a detailed earnings note on each respective bank in coming weeks.Analyst: Mari Kumagai

1H16 Better-Than-Expected Results Suggest Earnings Inflection Points; Positive For Japanese Banks

Japan

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

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Juroku Financial Group (7380 JP)

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

Lesser Known Names that Rebounded in September....

We screened for lesser known names (2 or fewer Analysts with coverage) in Japan that rebounded in September. Some of the larger names by mkt-cap...

Custom Products Group

Could Japan's Aggressive Stock Buyback Spree Slow an Economic Rebound?

Offerings of equities and convertible bonds totaled 720 billion yen over the first nine months of '16 and the trend continues unabated. Its the...

Howard J Klein

Minimal Impact From Larger Credit Loss on Toshiba; Maintaining FVE for Major Japanese Banks

On Jan. 19, Toshiba Corp (6502 JP) reported that it will likely book a combined noncash charge of up to JPY 700 billion, mainly for goodwill...

Morningstar, Inc.

1H16 Better-Than-Expected Results Suggest Earnings Inflection Points; Positive For Japanese Banks

Four major banks under our coverage reported better-than-expected results, indicating an inflection point in their earning structure. In aggregate,...

Morningstar, Inc.

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)