Ashikaga Surges as Regional Lender Weighs Joyo Bank Mergerby and
Stock climbs most since Sept. 9 in Tokyo trading Tuesday
Regional bank profits under pressure from slower growth
Ashikaga Holdings Co. shares surged the most in almost seven weeks as the Japanese regional lender and Joyo Bank Ltd. consider merging to buttress themselves from weakness in loan demand as the economy slows and population shrinks.
Ashikaga rose 3.5 percent to close at 526 yen in Tokyo on Tuesday. Joyo Bank fell 1.9 percent. Ashikaga is seeking to enter a basic agreement with Joyo Bank next month and make progress toward a merger around October 2016, Masaji Ebihara, a spokesman for the Tochigi-based lender, said by phone Tuesday. A holding company structure is likely, he said.
Financial Services Minister Taro Aso said he welcomed the move. Japanese officials have been urging local banks to consider merging to shore up profits weighed down by sluggish economic growth and declining interest rates. The privatization of Japan Post Bank Co., the nation’s biggest holder of deposits, following an initial public offering this month may also add competition for 105 regional lenders.
"We’ll be looking to see if this spreads to other banks," Takashi Miura, a Tokyo-based analyst at Credit Suisse Group AG, wrote in a report Tuesday. “We see debate over mergers intensifying from this year" as banks benefit less from clawing back reserves set aside for bad loans, he said.
Joyo Bank said a merger is one of many options it’s considering. Nothing has been decided, both companies said in statements late Monday.
With combined assets of about 15 trillion yen ($124 billion), a merger would create Japan’s third-biggest regional bank, data compiled by Bloomberg show. Joyo is based in Ibaraki prefecture, which is about 100 kilometers (62 miles) north of Tokyo and next to Tochigi. Joyo is the bigger of the two, with a market value of 484 billion yen compared with Ashikaga’s 175 billion yen.
Ashikaga went bankrupt in 2003 in the wake of Japan’s bad-loan crisis and was delisted the following year. A group led by Nomura Holdings Inc. acquired the lender in 2008 and helped it return to the Tokyo Stock Exchange through an initial public offering in December 2013.
Nomura holds a 37 percent stake in Ashikaga that was valued at about 65 billion yen as of Tuesday. The brokerage bought 46 percent of its common shares from the government for about 61 billion yen in 2008, according to the regional bank’s regulatory filings. Kenji Yamashita, a Tokyo-based spokesman for Nomura, declined to comment on the merger.
Ashikaga forecasts net income will slip 0.4 percent to 17 billion yen in the year ending March. Joyo projects profit will decline 0.6 percent to 28.5 billion yen.
“With the population declining, banks in general need to carefully consider their strategies,” Aso said at a news briefing in Tokyo Tuesday.
Other banks are combining. Bank of Yokohama Ltd., Japan’s biggest regional lender by market value, and Higashi-Nippon Bank Ltd. agreed last month to form a joint holding company called Concordia Financial Group Ltd. Kyushu Financial Group Inc. shares began trading this month following the merger of Kagoshima Bank Ltd. and Higo Bank Ltd.
Japan Post Bank, one of three companies listing next month as part of an $11.9 billion IPO of the postal service, has restrictions on its business that could eventually be loosened once it is public, allowing it to make loans and accept higher amounts of deposits than currently permitted. Japan Post has 24,000 branches nationwide, more than double the 11,000 of the country’s regional banks.
Total net interest income has declined at regional banks for the past seven years, Financial Services Agency data show. The regulator estimates that profits at one in five regional banks in the year ending March 2018 will be less than half what they are now.