Top online broker takes on Japan megabanks with surprise bid

Tokyo

A BILLION-DOLLAR unsolicited bid for an underperforming lender is Yoshitaka Kitao's boldest move yet to build a fourth megabank in Japan.

The aggressive offer by SBI Holdings' maverick chief executive officer (CEO) caps a two-year pursuit of Shinsei Bank with 10 trillion yen (S$122.3 billion) in assets.

Since an initial approach in 2019, Mr Kitao weighed launching a proxy battle to oust CEO Hideyuki Kudo earlier this year, before backing off when regulators baulked. Now, he is hoping a hefty premium will allow SBI to lift its stake in the lender to

48 per cent from 20 per cent, giving him effective control.

It is not how things are usually done in Japan - but Mr Kitao, 70, already has a reputation for shaking things up after building the country's largest online brokerage with bold measures such as slashing trading fees. His latest move could consolidate the banking space and lay the foundation for SBI to become the "fourth megabank", said JPMorgan Chase & Co.

The likes of Mitsubishi UFJ Financial Group and Mizuho Financial Group are part of a triumvirate that has held sway in Japan for two decades. The finance veteran sees the acquisition of a bank as key to expanding his sprawling businesses, said a person familiar with his thinking, asking not to be identified speaking on a private matter.

"SBI already has a reputation as a self-assertive investor willing to go slightly beyond traditional ways of doing things in Japan in order to advance its business growth," said Michael Makdad, an analyst at Morningstar in Tokyo. The firm was "clearly careful to engage regulators", he said.

Mr Kitao, who founded SBI more than 20 years ago as SoftBank Investment Corp within billionaire Masayoshi Son's empire, plans to remove Mr Kudo and other top management if his most recent bid is successful, said an SBI statement last week. Shinsei is still weighing the US$1.1 billion offer.

On Friday, after a board meeting, Shinsei said it has asked SBI to extend the offer period. The deal was proposed without prior consultation and it is introducing defence measures to secure time and information needed for its shareholders to determine its merits. SBI executives considered agitating to remove Mr Kudo at its annual shareholder meeting in June, but the regulator discouraged it, said a source familiar with the conversations.

SBI already runs banks in Japan and overseas and has invested in nearly 10 regional lenders. Still, Shinsei is by far the biggest and potentially most controversial. A stake of 48 per cent would be just below the threshold that would subject the company to heavy regulation as a bank holding company, but large enough to give it control over the firm.

The biggest benefit for SBI would be Shinsei's consumer credit business, which has been a "missing part" for the brokerage, said Hideyasu Ban, Tokyo-based analyst at Jefferies Financial Group. SBI has stumbled with past efforts to push into the consumer credit business, he said.

SBI said it first approached Shinsei in 2019 with a proposal to buy a controlling stake. When Shinsei management rebuffed that approach, the bank progressed to tie-up with SBI rival Monex. That move destroyed whatever goodwill SBI had toward Shinsei, said a regulatory official with knowledge of the matter who asked not to be identified.

In June, SBI weighed launching a proxy fight to remove Shinsei CEO Mr Kudo, but the Financial Services Agency cited concern that it would force the government, the bank's biggest shareholder at the time with a roughly 20 per cent stake, to pick a side in a high-profile proxy fight, a person familiar with the matter said.

Shinsei has also disputed SBI's explanation that it made a tie-up with Monex without consultation. The bank said it had talks with SBI's online brokerage unit and told SBI that there were other candidates also in the frame, it said in a statement on Thursday.

Shinsei repeatedly failed to attain its own targets on revenue and profitability over the past five years, SBI said. Shinsei's consumer finance business had about 480 billion yen in outstanding unsecured loans as of March.

A perpetual underperformer, Shinsei trades at around 0.33 time book value, and remains about 80 per cent lower than when it publicly debuted in 2004. SBI is hoping a 39 per cent premium to the closing stock price on the day of the offer will win over Shinsei shareholders. BLOOMBERG