SBI Holdings makes hostile $1.1bn move on Shinsei

SBI Holdings is a Japanese online financial conglomerate. It has launched a potentially hostile $1.1bn stakebuilding exercise in Shinsei Bank. Twenty-one years ago, Shinsei Bank’s stunning private equity rescue by JC Flowers reshaped the Japanese lending landscape. 

What does SBI Holdings’ move represent for Japan?

The unsolicited bid is the latest example of Japanese companies breaking a longstanding taboo against hostile offers. This could allow SBI to eject Shinsei’s current board. It could further force the bank into a series of closer operational alliances in areas such as unsecured loans. 

SBI made the move without securing the agreement of Shinsei. It established SBI’s UK-educated chief executive, Yoshitaka Kitao, as one of the most aggressive and innovative figures in Japanese finance. In a recent interview, he described himself as a “very straightforward guy” who was more comfortable speaking his mind than other Japanese bankers.

SBI planning to raise its stake in Shensei

Yohitaka Kitao is known for his sustained challenge against the dominance of traditional brokerages such as Nomura. Nomura has historically been slow to offer a full suite of online services and thus, lost significant market share to SBI among younger Japanese.

SBI holds 20 percent of Shinsei and had previously approached the company with the suggestion of capital and business alliances.  It now plans to use a tender offer to raise its stake to as much as 48 percent.

In a filing on Thursday, SBI said it was offering ¥2,000 a Shinsei share. This represents a 38 percent premium to Wednesday’s closing price, for a total of ¥116.4bn ($1.1bn). Shinsei said SBI did not consult the bank in advance. Hence, it called for “a careful response” from shareholders as its board studied the offer.

SBI SBI Holdings makes hostile $1.1bn move on Shinsei

SBI Holdings’ plans for a raising Japan’s fourth megabank

SBI plans to use its enhanced ownership position to demand radical improvement of Shinsei’s governance structure. This effort would involve ejecting the current board and replacing it with proposed names. The names include Hirofumi Gomi, the former commissioner of the Financial Services Agency.

SBI explained its tender offer. It said that although Shinsei had repeatedly failed to meet business targets in the years since 2016, its management had failed to take drastic countermeasures to remedy that situation. 

This bid is internally seen as an escalation of Kitao’s stated plans. Plans to convert a highly successful online financial services provider into Japan’s “fourth megabank”. This would theoretically put SBI Holdings among the ranks of Mitsubishi UFJ, Mizuho, and Sumitomo Mitsui.

In recent years, SBI has been a frenetic builder of stakes in smaller, ailing regional banks. In Particular, the ones that have been effected by the decline of rural economies and the aging population.

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