Nikko Cordial Up 13% on Rumor Citigroup May Boost Stake

It has been a rollercoaster ride for shareholders of Nikko Cordial following an accounting scandal last month that sent its shares lower by 28% in the ensuing two days. With today's 13% jump to ¥1,364 however, its shares have recovered their pre-scandal value. Bloomberg reports sources say Citigroup may raise its stake in Nikko to 33.4% (valued at ¥380 billion, or $3.1b), from 4.9%, in order to gain a management veto. Citigroup previously owned more than 20% of Nikko but has cut its position in recent years. Citigroup also owns a 49% stake in an investment bank joint-venture with Nikko and has signaled interest to expand its retail banking presence. A listing on the Tokyo Stock Exchange is also under consideration. Citigroup is not the only interested party. A Mizuho spokeswoman confirmed the bank is "interested." It currently owns a 4.8% stake.

Sources: Bloomberg
Commentary: Citigroup Has Decisions to Make Amidst Nikko Cordial Uncertainty • Citigroup: Japan Expansion and M&A Could Bring Tokyo Exchange Listing • Eye on the Prize: Citigroup and Mizuho Battle for Nikko Cordial
Stocks/ETFs to watch: Citigroup (C), Nikko Cordial (NIKOY), Mizuho Financial Group (MFG). Competitors: Mitsubishi UFJ Financial Group (MTU), ABN Amro Holding N.V. (ABN). ETFs: iShares S&P Global Financial Index Fund (IXG), iShares Dow Jones US Financial Services (IYG), Financial Select Sector SPDR (XLF)

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Lance:]

Pre-scandal (12-15-2006) Nikko was cresting 1500 yen. So no, it has *not* recovered fully yet.

Insiders are both manipulating price, and of course acting on information not known by the public, which I suspect would include the likelihood or not of a delisting.

To wit, on Thursday (2-22-2007) at about 1 PM in the afternoon session, a dull Nikko Cordial market (sub 1200 yen) suddenly exploded in 15 or 20 minutes to 1337. In another 15 or 20 minutes, remarkably, it was trading all the way back at 1220, closing the day finally at 1240, and opening lower Friday.

Yesterday, it's up limit on the news, but it doesn't *stay* up limit even one minute. Someone with 5 million shares hits the lock-limit bid of 1411, and after some jostleling just below the limit price, the stock closes the morning session at 1371, a rebound off the morning low, then drifts sideways to lower in the PM session.

There is a lot of speculation going on here of course, but someone with a very large bag of shares is selling into it. Today's action should be very interesting.

Note, the 5 million dumped against a limit-up market yesterday morning at 9:46 could easily have been picked up over the past couple weeks at around 1200. So it's quite possible somone simply wante to pocket 10 million dollars very quickly. But in any market where there is no uptick rule, one has to be very careful when an issue becomes highly speculative.

Interestingly, volume yesterday was essentially equal to Thursday's intraday circus (which had been running low until volatility ran amok in the PM session): about 24 million shares.

2007 Feb 26 05:44 PM

[Lance:]

It's also important to note relative valuations here. While Nikko Cordial has recovered a lot but is still about 10 percent off the pre-scandal mark, in the meantime Daiwa and Nomura, not so mention some of the other brokers, have advanced a quick 20 to 30 percent. So the valuation of Nikko has cratered compared to the group.

For the past 4 weeks, buy (any broker other than Nikko) and short an equivalent amount of Nikko on any rise, has not been a bad trade. Yesterday, some of the air in the Securities group escaped. I would not be suprised to see profits taken and a reversal of this type of trade come to the fore.

2007 Feb 26 05:56 PM

[Lance:]

Ah yes. The manipulators are in full force today, what with a somewhat weakish futures market. 12:40 PM here, and Nikko has suddenly resumed its rock-like behavior, trading now at 1271 (-100 roughly) off an order-imbalance up opening.

As I said weeks ago, there is no sense trying to trade this stock. Money management cannot be accomplished under these circumstances. You either believe what you believe and are in ... or out.

The market is beginning to suggest that "out" is the way to go. But the Tokyo market is known for blatant deception.

Before I can even get this off, Nikko is back to 1308, which is only comforting to the people who did not buy yesterday, or this morning.

2007 Feb 26 10:44 PM

[Lance:]

One of the tabloids (not NHK or Nihon Kezai Shimbun) is reporting this morning that Nikko will be delisted. This cannot be confirmed by mainstream journalists as yet, and may in fact be price more of the blatant manipulation that is part of this "modern" market in Tokyo.

Seven minutes before the open, Nikko is being quoted limit down (but so are a lot of others today, and that will change) 1147, about 6.5 million to sell and 3.8 million bid. If it stays that close, the stock will almost surely *not* open limit down.

But it might close there.

Bid is increasing now with 5 minutes to go -- should be unpleasant for speculators who have recently joined the fray, but I would expect an open above limit. Ya never know here, however. ^_^

2007 Feb 27 06:57 PM

[Lance:]

Nikko reaches limit down (1147) at 9:50 am, and stays there, 2:1 order imbalance in the 10 to 12 million share differential range.

At 10:39, Mr. Deep Pockets steps in and bids for the entire offer, and gets it of course. The stock rockets off limit down to reach 1184, but closes the AM session 3 yen off limit down (1150).

Volume ~22 million, with ~16 million of that done on the open or before 10:40.

Fun stock. Fun situation. Guess right, win big. Guess wrong, go home naked.

2007 Feb 27 09:05 PM

[Lance:]

2:20 PM, Wednesday last of February in Tokyo:

Nikko down limit. Nihon Keizai Shimbun (now called "Nikkei") apparently validates Nikko delisting for April.

Try to find a bid. Somewhere. Anywhere. Pink sheets???

2007 Feb 28 12:10 AM