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| Daiwa to buy out SMFG, ending bank venture |
| Bloomberg / Tokyo Sep 11, 2009, 00:03 IST |
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Daiwa Securities Group Inc, Japan’s second-largest brokerage, will buy out its partner Sumitomo Mitsui Financial Group Inc, ending their 10-year-old investment banking venture, two people familiar with the situation said.
Shigeharu Suzuki, Daiwa’s chief executive officer, will hold a press briefing this afternoon in Tokyo to explain how it will run Daiwa Securities SMBC Co. on its own, said the people, who declined to be identified before the announcement.
Daiwa faces domestic rivals that have bulked up in the past year as Nomura Holdings Inc. bought operations from Lehman Brothers Holdings Inc. and Mitsubishi UFJ Financial Group Inc. allied with Morgan Stanley. Sumitomo Mitsui had sought a bigger holding in the venture and was in talks with Daiwa to take a majority stake, people familiar with the matter said last month.
“Daiwa must respond to this crisis,” said Azuma Ohno, a Tokyo-based analyst at Credit Suisse Group AG. “It remains to be seen how Daiwa will overcome the loss and expand its investment banking on its own, or in an alliance with a local lender or overseas investment bank.”
Sumitomo Mitsui, Japan’s second-largest bank, will also hold a press conference this afternoon to discuss details, the people said. Sumitomo Mitsui is considering selling its 40 per cent stake for about 200 billion yen ($2.2 billion), and may offer a loan to Daiwa for the acquisition, the people said.
Daiwa’s spokesman Ryoji Fuchinoue declined to comment. Sumitomo Mitsui’s Tokyo-based spokeswoman Chika Togawa was not immediately available to comment. Sumitomo Mitsui rose as much as 4.2 per cent to 3,760 yen and traded at 3,710 yen as of the 11 am trading break on the Tokyo Stock Exchange. Daiwa rose 0.8 per cent to 533 yen.
Ohno estimated that Daiwa SMBC’s revenue may fall 30 percent with the withdrawal of Sumitomo Mitsui, a bank with ties to the Sumitomo and Mitsui groups. The venture’s sales slumped 81 per cent to 45.5 billion yen in the year ended March 31 as the global financial crisis curbed stock sales and mergers and acquisitions.
Sumitomo Mitsui announced on September 4 it was in talks to end the venture, two weeks after two people familiar with the situation said the Tokyo-based company was seeking to raise its stake and take majority control. The bank will now become one of Daiwa’s biggest competitors, after agreeing in May to acquire Nikko Cordial Securities Inc, Citigroup Inc’s retail brokerage unit, and a part of Citigroup’s Japan investment banking business for 545 billion yen. Sumitomo Mitsui said on August 25 it would set up its own investment banking unit with about 200 bankers from Citigroup.
Moody’s Investors Service cut its rating on Daiwa and the Daiwa SMBC on September 8, citing earnings volatility at the venture. Moody’s said its rating outlook for the venture’s long-term debt, which it reduced to A2 to A1, is negative and may be downgraded further if Sumitomo Mitsui withdraws support.
Daiwa SMBC has units in the UK, Hong Kong, Singapore, Australia, India, Taiwan and the Philippines. The venture was the fifth-largest adviser for mergers and acquisitions involving Japanese companies last year and the third-largest underwriter of Japanese corporate bonds in 2008, according to Bloomberg data.
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