Mitsubishi UFJ Financial Group, Japan's biggest bank, will spend about 153 billion yen ($1.4 billion) to more than double its stake in consumer lender Acom Co. as foreign companies withdraw from the market.
Mitsubishi UFJ will increase its holding in Acom, Japan's biggest consumer finance company by market value, to 40 percent from 16 percent, it said in a statement. The offer values Acom at 638.5 billion yen.
Acom will add about 1.4 trillion yen of loans to individuals and small companies, which make up a smaller percentage of lending at Mitsubishi UFJ than at rivals such as Sumitomo Mitsui Financial Group. Tokyo-based Mitsubishi UFJ joins Shinsei Bank in buying into Japan's consumer finance industry as Citigroup and General Electric exit a market that's been shrinking since a 2006 government crackdown on lending practices.
“For Mitsubishi UFJ, it makes sense long term because they don't have the level of personal loans that other banks do,” Kristine Li, an analyst at KBC Securities Japan in Tokyo, said before the announcement.
Mitsubishi UFJ is also expanding overseas. It invested more than $1 billion in five Asian financial institutions from Singapore to Indonesia during the past two-and-a-half years and on Aug. 18 said it will spend $3.5 billion to gain full control of California-based lender UnionBanCal.
Acom to Be Subsidiary
The bank plans to make Acom a consolidated subsidiary and integrate the company into its consumer finance business, the release said. It will pay 4,000 yen a share for the 24 percent stake in Acom. The bid period is from Sept. 16 to Oct. 21.
Tokyo-based Acom has risen ten percent since the potential deal was first reported on Aug. 28 and climbed 3.6 percent before the announcement. Mitsubishi UFJ gained 13 percent.
The investment follows Shinsei's announcement in July that it will spend 580 billion yen to acquire General Electric's local consumer finance businesses. Citigroup's consumer loans unit, which had 32 branches and 540 automated loan machines in Japan as of June, plans to close them and transfer capital to more profitable areas.
Consumer Lenders
Consumer lenders in Japan have grappled with falling sales since a crackdown two years ago by the government and courts on interest rates and collection practices. Acom and its main rivals Promise, Aiful and Takefuji posted losses totaling 1.7 trillion yen in the year ended March 2007 after making provisions for potential refund claims by borrowers who paid excessive fees and interest.
The government approved legislation in 2006 capping the interest rates consumer lenders can charge at 20 percent, down from 29 percent previously.
The country's weakening economy, which shrank by an annualized 2.4 percent in the three months ended June 30, and rising prices are also crimping household spending and driving up bad-loan ratios.
”Mitsubishi UFJ shouldn't invest in Acom, as consumer finance isn't profitable,” said Hiromichi Tsuyukubo, a hedge-fund manager in Tokyo at Myojo Asset Management Japan, which oversees about $150 million. The bank should instead seek to buy a stake in Lehman Brothers Holdings, the U.S. securities firm that's trying to raise capital, he said.
Shares Decline
Acom is the only one of Japan's four biggest consumer whose market value increased this year as it has avoided selling convertible bonds, issued by Promise, Takefuji and Aiful to boost capital and repay debt. The stock is up 37 percent since the end of 2007, compared with declines of 12 percent to 58 percent for its three biggest rivals.
Acom boosted first-quarter profit 51 percent from a year earlier to 20 billion yen, even as revenue fell 14 percent, it said Aug. 7.
“There may be opportunities in the consumer finance market now that the dust has settled,” said Kirby Daley, senior strategist at Newedge Group in Hong Kong. The Japanese government may be tempted to introduce “a slight easing of regulations” as the economy slows, making the industry more appealing, he said.
Mitsubishi UFJ made its Mitsubishi UFJ Nicos credit-card arm a wholly owned subsidiary earlier this year, as it cut jobs at the business after two straight years of losses. The bank boosted its holding in Jaccs, a consumer credit company, to 20 percent from 6.9 percent this year.
Debt Repayment Funds
DC Cash One, an Internet-based consumer finance company set up by Acom and Mitsubishi UFJ in August 2001, plans to merge its loan business with Acom by April 2009, the statement said.
If Mitsubishi UFJ's offer for Acom is successful, the bank will lend 57.3 billion yen to Acom, 40 billion yen of which will be used to repay debt, Acom said in a release.
Mitsubishi UFJ Securities and Nomura Securities advised Mitsubishi UFJ on the transaction, while Merrill Lynch advised Acom.
With major overseas banks leaving the Japanese market, can local banks alone revive consumer lending in the country?
posted by Charltonmedia.com @ 2:26 PM
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