Will Shinsei be able to repay public funds after it becomes a unit of SBI?

Major online financial services provider SBI Holdings Inc. has successfully completed a tender offer for Shinsei Bank that was launched in September this year.

As a result, SBI has acquired an equity stake of 47.77% in the bank, up from about 20%. The company said it will make the bank a subsidiary on Dec. 17.

After the takeover bid was launched, Shinsei Bank announced its opposition and decided to introduce anti-takeover measures, making this the first hostile takeover in Japan’s banking industry.

However, Shinsei Bank withdrew its anti-takeover measures in November. A major reason for the withdrawal is thought to be the fact that the bank was informed of opposition to the measures within the government, which has a large stake in the bank.

It is important for SBI to try to reconcile with Shinsei Bank as soon as possible and smoothly shift to a new management structure.

Following the completion of the tender offer, Shinsei Bank intends to hold an extraordinary shareholders meeting as early as February next year to appoint to the board SBI Senior Executive Vice President Katsuya Kawashima, who is a candidate for the post of Shinsei president, and former Financial Services Agency Commissioner Hirofumi Gomi, who is a candidate for the chairman’s post, according to SBI. Hideyuki Kudo, the current president of the bank, will step down.

The major challenge for the bank’s new leadership will be the repayment of public funds. The Long-Term Credit Bank of Japan, the predecessor of Shinsei Bank, went bankrupt in 1998, and the government provided an injection of funds to rescue it. About ¥350 billion of the money has yet to be repaid.

At that time, other major banks also received capital injections from the government, but Shinsei Bank is the only one that has not paid off its debt. Although banks serve the public interest as part of the financial infrastructure, as long as they are funded by taxes, it is quite natural for them to be responsible for repaying their debts.

SBI President Yoshitaka Kitao has expressed his willingness to repay the public funds, saying, “If a bank doesn’t repay money for 10 or 20 years, it’s no better than a thief.” Starting from now, SBI, along with Shinsei Bank, will assume responsibility for repaying the debt.

It is hoped that concrete measures will be presented promptly to increase the bank’s corporate value and make repayment possible.

SBI has formed capital tie-ups with eight regional banks, including ones based in Sendai and Fukushima City. With Shinsei Bank at its core, SBI said it will share advanced financial services with regional banks, among other methods, to boost the group’s profitability strategically.

However, the financial industry is facing a difficult business environment due to ultralow interest rates.

Shares acquired by the government in exchange for public funds have fallen in value. To recover the public funds without incurring losses, it is necessary to raise Shinsei Bank’s stock price to ¥7,450 from the current value of around ¥2,000. In reality, this will not be easy to achieve.

In addition to Gomi, SBI has in its group many executives who were FSA officials. It is essential for SBI and Shinsei Bank to increase the transparency of their businesses so as not to raise doubts about their relationship with the government.

— The original Japanese article appeared in The Yomiuri Shimbun on Dec. 15, 2021.