And Several Analysts Are Unhappy About It!
From Bloomberg:
Softbank Looks Set to Enter `Old Economy' Via
Nippon Credit Bid
By Bradley Meacham
Softbank Looks Set to Enter `Old Economy' Via Nippon Credit Bid
Tokyo, Feb. 22 (Bloomberg) -- Softbank Corp., the Internet
company leading Japan's move into the `New Economy', will this
week likely add a chunk of the `Old Economy' to its rapidly
growing empire.
Softbank, which has stakes in more than 120 Internet
companies and has seen its stock price double since November, is
the company seen as most likely to be chosen by the government to
take the failed Nippon Credit Bank Ltd.
If its bid is successful, say analysts, it will be one of
Softbank's most challenging ventures.
``Softbank's going to get more and more complicated if they
join this business,' said Kota Nakako, an Internet analyst at
Warburg Dillon Read. ``Now there will be more and more reasons to
discount the stock.'
So far, investors have endorsed Softbank founder Masayoshi
Son's plans to create a zaibatsu of red-hot Internet stocks. So
much so that the company -- which has stakes in companies
including Yahoo! Inc. and E*Trade Group Inc. -- last week
accounted for 40 percent of trading value on the Tokyo Stock
Exchange.
Softbank's shares, which have risen more than 2,000 percent
in the past year, recently traded down 5,000 yen at 172,000 yen.
Yet the company, which is bidding in conjunction with Orix
Corp., Japan's largest nonbank financial company, and Tokio Marine
& Fire Insurance Co., the largest casualty insurer, has given few
hints of its plans for NCB -- the country's 14th largest lender
before it collapsed under at least 95 billion yen ($856 million)
of bad debts in 1998.
Cash Injection
According to an outline of the group's plans reported in the
Nihon Keizai newspaper last week, the buyers would shrink the
bank's current 12.7 trillion yen in assets to about 4-5 trillion
yen. The group will inject 100 billion yen into the bank and boost
its cash-to-loans ratio to around 13 percent, the report said.
The group will acquire all shares of Nippon Credit, formerly
a government-led lender specializing in long-term loans to
corporations, for between 1 billion yen and 10 billion yen. Then
the government will provide 200 billion yen in public funds in
exchange for the group's promise to not cut off any troubled
borrowers, the report said.
For Softbank, which would take 60 percent of Nippon Credit
and split the rest with Orix, Tokio Marine and other future
partners, the bank's operating license would be another step
towards a planned ``online financial services mall.'
The company, which already has operations including,
securities trading, insurance and leasing, last month agreed to
start an online settlement service with Suruga Bank Ltd., a
regional Japanese bank, offers loan products online with 11
regional banks, and is setting up an online bond trading system
with Lehman Brothers Holdings Inc.
Profitable?
Its smaller size and plans to target the small business
market would allow the revamped Nippon Credit to operate under the
radar of the larger nationwide banks, said Yoshinobu Yamada, an
analyst at Merrill Lynch % Co. That would put Nippon Credit in
competition with small lenders who specialize in high-margin loans
to small businesses, he said.
While that market could be profitable, the Softbank group
needs to provide a convincing plan to beat the competition, Yamada
said.
``Unless they improve the contents of the net banking plan
there won't be high profitability,' he noted.
And NCB, which has 18 branches across Japan, still has
problems.
Nippon Credit had 3.2 trillion yen of liabilities in excess
of assets last Sept. and broke even only after a 99 billion yen
infusion from the government. The group plans for net operating
profit of about 40-50 billion yen, the report said.
Softbank Strategy
Softbank's bid began last November when it planned to join
Ito-Yokado Co., the country's largest retailer, which planned to
link the bank to its Seven-Eleven Co. chain. Ito-Yokado later
decided to seek its own banking license and dropped out of the
Nippon Credit race.
Now, some analysts say Softbank probably needs Lehman
Brothers or France's Paribas SA, which both withdrew separate bids
for the bank last month, to help navigate the banking minutiae.
The lack of detail also has analysts wondering if Softbank's
cash horde isn't clouding its investment logic.
``Why would you invest in the bank for any of the reasons
they're giving?' said Jim McGinnis, an analyst at Commerz
Securities (Japan). ``They're taking on a lot of dead wood to get
a (banking) license.'
The government is also trying to find suitors for three small
failed second-tier regional banks which would be easier to handle
if acquiring a banking license shell is what the investors want,
he said.
Challenging Task
Even though Softbank is building expertise offering financial
services via the Internet and Orix already does securitization and
corporate finance, tough competition and political hurdles may
make running the bigger bank difficult.
``What's the worst sector to be involved in in Japan?'
McGinnis said. ``At least if you were investing in steel then you
could take plant off it and sell the land.'
Success for the eventual buyer will ultimately depend on the
personnel at the revived Nippon Credit and whether they can
introduce strict risk analysis and restructure the bank's
portfolio. Moreover, if they have that speed and expertise from
online business, why take on a bank?
``You've got to wonder why, why Nippon Credit?' Warburg's
Nakako said. ``Everyone's buying Internet. And now the market
can't digest why they're going after a bank.' |
