Land of the Rising Shareholder: Nikkoy Attempting Big Bank Buyout (NIKOY)

Mar.27.06 | About: Nikko Cordial (NIKOY)

Nikko Cordial (OTC:NIKOY) may buy a 50% stake in Tokyo Star Bank, valued at about $1.2 billion, to become the first Japanese securities firm to acquire a commercial lender, according to reports such as this one from Bloomberg on Friday:

Much of the stake will come from Lone Star Funds, according to the four people, who have direct knowledge of the plan and declined to be identified ahead of a statement. The Dallas-based investment firm owns 68 percent of Tokyo Star, according to data compiled by Bloomberg. Shares of the Japanese lender surged.

The acquisition by Nikko Cordial, Japan's third-largest brokerage, may herald more financial mergers in Japan as banks and securities firms vie for the nation's $12 trillion in household savings. Tokyo Star has more than 30 branches and 1.3 trillion yen ($11 billion) of deposits. The talks were reported in the Nihon Keizai newspaper earlier today.

Regular readers of mine know that the corporate governance climate in Japan has been getting increasingly shareholder friendly. That's true for the country in general, and in the financial services sector in particular. But this purchase by Nikko, if it happens, marks a milestone in the Land of the Rising Sun.

And I'm not the only one feeling that way:

"This deal signals a new phase in the consolidation of Japan's financial industry,'' said Neil Katkov, the head of research in Asia at Celent LLC, a U.S.-based financial technology consulting firm. "The past few years have seen the megabanks building up brokerage businesses. Now it's the big brokers' turn to move onto their turf.

''Nikko Cordial Chief Executive Officer Junichi Arimura, 56, is expanding the firm's retail brokerage to take advantage of Japan's biggest share rally since 1972. Buying a bank would also enable the company to make property loans after commercial land prices in 2005 rose in the nation's three largest cities for the first time in 15 years.

"The next game in Japan will be taking care of personal financial assets,'' said Alexandre Tavazzi, who helps manage about $1 billion of Japanese stocks at Geneva-based Pictet & Cie.

The Bloomberg report also contains a nice overview of Nikko Cordial:

Nikko Cordial last week forecast profit will double to a record 94 billion yen in the year ending March 31, after posting net income of 77.2 billion yen in its first three quarters. Stock brokerage commissions soared to 30.1 billion yen in the three months ended Dec. 31, from 12 billion yen a year earlier as a 19 percent gain in the benchmark Nikkei 225 Stock Average doubled daily trading in the quarter.

The firm also profits from its 26 percent stake in Monex Beans Holdings Inc., Japan's second-largest online brokerage by accounts, which boosted third-quarter profit to a record 4.72 billion yen, from 1 billion yen a year earlier. Funds under management rose to more than 9 trillion yen at Nikko Asset Management Co., the brokerage's money management unit, which will be sold in an initial public offering.

Nikko's ADRs were first recommended here at the split-adjusted price of $8.64 each on May 26. I posted about taking partial profits on the stake last week. The company continues to be a large holding (actually the second-largest holding in the portfolio) and the ADRs closed Friday at $16.55.

NIKOY 1-yr chart: