Sumitomo Mitsui (8316) Banking Corp. is seeking about HK$7.4 billion ($955 million) of additional shares in Hong Kong’s Bank of East Asia Ltd. (23) as the Japanese lender seeks to boost profits from outside its home country.
Sumitomo Mitsui signed a non-binding memorandum of understanding to buy 222 million new Bank of East Asia shares to raise its ownership to about 17.5 percent from 9.6 percent, the Tokyo-based firm said in a statement on its website yesterday. The purchase price will be determined when a more definitive agreement is signed, the Japanese company said.
The possible stock sale comes almost two years after SMBC spent $426 million to double its stake in Bank of East Asia. Japan’s three so-called megabanks including SMBC’s parent Sumitomo Mitsui Financial Group Inc. are accelerating efforts to boost lending abroad as domestic interest rates decline amid unprecedented bond buying by the central bank.
“SMFG is aiming to increase its exposure to Chinese business,” Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo, said by phone yesterday. “One of Bank of East Asia’s main advantages is that 40 percent of its lending is from mainland China.”
An increased share of Bank of East Asia’s profit would help Sumitomo Mitsui increase contributions from outside Japan, where it now gets about 80 percent of its revenue, data compiled by Bloomberg show.
The Hong Kong bank, controlled by the family of Chief Executive Officer David Li, reported a record half-year profit on Aug. 1. Lending growth in Hong Kong helped to support the bank’s profit as bad loans rose in China, which accounted for 41 percent of Bank of East Asia’s first-half operating income.
“The share purchase shows SMBC’s confidence in Bank of East Asia,” Edmond Law, a Hong Kong-based analyst at UOB-Kay Hian, said by phone yesterday. “It looks more like a financial investment. The Japanese bank has not been involved a lot in Bank of East Asia’s business.”
Sumitomo Mitsui said it plans to take a seat on the Hong Kong company’s board should the sale go ahead.
Shares of SMBC’s Japanese parent fell less than 0.1 percent to 4,296 yen in Tokyo yesterday. Bank of East Asia sank 0.3 percent to HK$33.35, paring its 2014 gain to 1.5 percent.
The cost of the transaction will be based on the volume-weighted average price of Bank of East Asia’s shares “over a prescribed period,” Sumitomo Mitsui said, without being specific. Based on last traded prices, the purchase would be worth HK$7.4 billion.
Besides low interest rates, a shrinking Japanese population is also prompting the nation’s biggest banks to expand abroad. Sumitomo Mitsui bought 40 percent of Indonesia’s PT Bank Tabungan Pensiunan Nasional (BTPN) for about $1.5 billion last year, the Japanese lender’s biggest purchase of a foreign financial firm.
Mitsubishi UFJ (8306) Financial Group Inc., Japan’s biggest lender, is considering a bid for Bank of New York Mellon Corp.’s corporate trust arm, people with knowledge of the matter said in May. Mitsubishi UFJ, which owns about 22 percent of Morgan Stanley, bought Thailand’s Bank of Ayudhya Pcl for about $5 billion last year, its largest investment in Asia.
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