Shinsei Bank, which has captured the spotlight recently due to a sudden takeover bid from major Japanese online financial service firm SBI Holdings Inc., continues struggling to shore up its operations, with its share prices remaining low for a long period of time.
The bank has little prospect of repaying about ¥350 billion in public funds, or taxpayer money, provided by the government in the past. In 2009, it agreed with Aozora Bank on their merger for survival. But the merger accord broke down the following year.
Long-Term Credit Bank of Japan, Shinsei’s predecessor, had supported Japan’s miraculous economic growth after World War II, but went bankrupt in October 1998 in the wake of the collapse of the country’s asset inflation-driven bubble economy at the time and was temporarily put under state control. The bank made a fresh start with its current name under the lead of a foreign fund in 2000.
Shinsei’s stock prices topped ¥8,000 shortly after it was relisted on the first section of the Tokyo Stock Exchange in February 2004. Following the collapse of U.S. investment bank Lehman Brothers in September 2008, Shinsei stock sank and traded around between ¥1,000 and ¥2,000.
In 2009, the Financial Services Agency mapped out a plan to merge Shinsei and Aozora, formerly Nippon Credit Bank, which also underpinned Japan’s postwar economic boom and went bust about two months after the collapse of LTCB, in an effort to collect the public funds pumped into the bank. But the plan ended in failure.
SBI announced Thursday a tender offer for Shinsei, saying that it will buy shares in the bank at ¥2,000 apiece.
Shinsei has been facing difficulties revving up its earnings as its consumer loan business is struggling and its operations for business clients, including institutional investors, are also lacking luster.
It is believed that the government would be unable to collect the public funds used for the bank unless its stock prices rise to around ¥7,500, far higher than the level set by SBI in the tender offer and the stock’s current prices below ¥2,000.
At Shinsei’s general shareholders meeting in June, its president, Hideyuki Kudo, failed to show when it would be able to repay the public funds, saying only that its current share prices are not high enough to allow the bank to pay back the funds.
Shinsei needs to show a clear path to jacking up its share prices if it plans to reject SBI’s takeover bid, analysts said.
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