Daiwa Securities to buy Aozora Bank stake from activist fund

DAIWA Securities Group said it will increase its stake in Japan’s unprofitable Aozora Bank. The brokerage’s shares tumbled 4.6 per cent.

Daiwa will buy 9.1 per cent of the bank from City Index Eleventh, a fund linked to Yoshiaki Murakami, Japan’s best-known activist investor, and Aya Nomura, who is Murakami’s daughter.

Combined with an earlier agreement, the purchase will give Daiwa a 24 per cent stake in Aozora, the worst-performing major bank stock in the country. While Japan’s other large banks are predicting record profits this year, Aozora is still trying to recover from a failed foray into the US commercial property market that saddled it with its first loss in 15 years.

“Unless Aozora revives itself very quickly, it would be difficult to persuade the market to more positively view this investment,” said Hideyasu Ban, a Bloomberg Intelligence analyst.

As part of their alliance, Daiwa and Aozora plan to cooperate in four areas: wealth management, real estate, mergers and acquisitions and startups.

The support from Daiwa will help Aozora as it crafts a new strategy. In February, the bank shocked the market with losses on its portfolio of office property loans in the US. Its shares were hammered and it lost one-third of its value in two days. The stock is still down 22 per cent for the year compared with a 34 per cent gain in the Topix banking index.

For Daiwa, the investment is a bet that Aozora will recover and benefit from a resurgence in domestic lending income following the end of negative interest rates by the Bank of Japan. In May, Daiwa said it would acquire a stake in Aozora for about 51.4 billion yen, giving the lender fresh capital.

“As interest rates rise, the banking business is going to become more profitable,” said Masahiro Yamaguchi, a senior market analyst at SMBC Trust Bank.

“From Aozora’s perspective, a stable major shareholder will enhance stability.”

The deal also puts an end to months-long speculation over potential moves by City Index Eleventh, which had not made any public demands on the bank. The fund declined to comment.

Daiwa will pay 2,415.5 yen per share, according to a company spokesperson, making the total investment about 27.9 billion yen (S$240.7 million). That’s 4 per cent less than Aozora shares were trading at before City Index Eleventh’s investment was made public.

Daiwa’s shares fell to 1,254.5 yen and Aozora gained 1 per cent to 2,402.5 yen. BLOOMBERG