Dai-Ichi Kangyo Bank announced Friday it will strengthen its securities business unit by raising its stake in affiliate Kankaku Securities Co.
DKB will buy 40 billion yen worth of shares to be issued by Kankaku, a midsize brokerage, in July and October, officials said.
This will raise the stake held by the bank and its subsidiary DKB Securities Co. from 37 percent to about 52 percent.
The bank will also increase its support to DKB Securities by buying new shares worth 40 billion yen in July, the officials said. DKB Securities will then invest 20 billion yen in Kankaku, 10 billion yen each in July and October.
After the capital influx, Kankaku Securities will dispose of bad loans at its affiliated nonbank institutions and repay subordinated loans. The firm's capital-adequacy ratio is expected to exceed 300 percent.
A securities house is ordered to suspend operations if its capital-adequacy ratio slips below 100 percent.
The bank officials said the moves are aimed at securing a solid foothold in the bank's securities business unit ahead of the full liberalization of securities transaction fees and deregulation for brokerages owned by banks, both scheduled for October.
DKB's decision comes amid a recent trend by banks to get fully into the securities business through their subsidiaries. Securities subsidiaries of banks are barred from conducting operations such as dealing in and underwriting stocks.
With the latest move, DKB will have two securities companies directly under its control. DKB officials said Kankaku will focus on business with individual clients, and DKB Securities will specialize in business with institutional investors.
Kankaku, which posted pretax losses for the eighth consecutive year in fiscal 1998, said the firm has carried out drastic downsizing to improve its profitability.
In the last two years, it has reduced the number of branches from 72 to 54 and cut its workforce from 2,800 to 1,800.