Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>In April, Silchester went after <a href="https://www.smartkarma.com/entities/shiga-bank-ltd" target="_blank" data-smartkarma-citation="entities:18665:1" rel="noopener">Shiga Bank (8366 JP)</a>(<a href="https://www.smartkarma.com/insights/japan-activism-silchester-goes-after-shiga-bank" target="_blank" data-smartkarma-citation="insights:69339" rel="noopener">JAPAN ACTIVISM:  Silchester Goes After Shiga Bank</a>), with an open letter decrying destruction of shareholder value, asking for a special dividend. </li>
<li>They said Shiga Bank had excess cross-holdings and perennially low ROE (it does). Silchester asked for a minimal special div as a signal. Shareholders dinged their request at the AGM. </li>
<li>Shiga Bank had a decent runup in the last several months - far outstripping its peers. Now it is rich. Time to take the trade off.</li>
</ul>


In April, Silchester went after Shiga Bank (8366 JP)(JAPAN ACTIVISM:  Silchester Goes After Shiga Bank), with an open letter decrying destruction of shareholder value, asking for a special dividend. 
They said Shiga Bank had excess cross-holdings and perennially low ROE (it does). Silchester asked for a minimal special div as a signal. Shareholders dinged their request at the AGM. 
Shiga Bank had a decent runup in the last several months - far outstripping its peers. Now it is rich. Time to take the trade off.


JAPAN ACTIVISM:  Silchester Target Shiga Bank Dings the Div Proposal Badly

<ul>
<li>Silchester aimed at four mid-sized regional banks and one tiny one. All four efforts failed, but two of the four banks are probably worth looking at. </li>
<li>
<a href="https://www.smartkarma.com/entities/bank-of-iwate-ltd" target="_blank" data-smartkarma-citation="entities:6171:1" rel="noopener">Bank Of Iwate (8345 JP)</a> is the small one (tiny) worth looking at. It is 0.17x book, &lt;7x earnings, 1.2x market cap in equity holdings, and better-than-average NIM.</li>
<li>Over time, value will out. And while not multi-bagger compelling, the mechanical value arithmetic is interesting.</li>
</ul>


Silchester aimed at four mid-sized regional banks and one tiny one. All four efforts failed, but two of the four banks are probably worth looking at. 

Bank Of Iwate (8345 JP) is the small one (tiny) worth looking at. It is 0.17x book, &lt;7x earnings, 1.2x market cap in equity holdings, and better-than-average NIM.
Over time, value will out. And while not multi-bagger compelling, the mechanical value arithmetic is interesting.


JAPAN ACTIVISM:  Silchester AGM Effort Fails But Bank of Iwate (8345) Is Cheap As Chips

<ul>
<li>Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.</li>
<li>
<a href="https://www.smartkarma.com/entities/bank-of-iwate-ltd" target="_blank" data-smartkarma-citation="entities:6171:1" rel="noopener">Bank Of Iwate (8345 JP)</a> is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.</li>
<li>The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.</li>
</ul>


Silchester has written letters to four Japanese regional banks where they hold large stakes asking for higher dividends and payout ratios. It has proposed a special div AGM agenda item.

Bank Of Iwate (8345 JP) is nearly 40% held by cross-holders and government-affiliated entities, and Real World Float is less than 50%. Winning at the AGM is tough.
The collection of banks is mixed. But this one is cheap. Cheap as chips. Or cheaper.


JAPAN ACTIVISM: Silchester Goes After Bk of Iwate - Cheaper Than Chips

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/fidea-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:17012:1" rel="noopener">Fidea Holdings (8713 JP) </a>from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based <a href="https://www.smartkarma.com/entities/tohoku-bank-ltd" target="_blank" data-smartkarma-citation="entities:8169:1" rel="noopener">Tohoku Bank (8349 JP)</a> will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (8713 JP) from Miyagi Prefecture in Japan’s northern Tohoku Region has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all-share deal.   The announcement, which was reported during market trading hours, sent both stock prices up almost 10% on Friday 2 July.  However, rather than presaging a new paradigm for these banks, the spike in the stock prices was simply a reminder of how essentially illiquid these stocks are. The shares retreated to their pre-announcement levels in the following week.Fidea Holdings is the holding company for the smallest of three banks from Yamagata Prefecture, Shonai Bank, and the smallest of two banks from Akita Prefecture, Hokuto Bank.  Tohoku Bank, from Iwate Prefecture, is the smallest of three banks based there, and roughly one-third the size of Fidea Holdings.  Far from being a ‘Band of Brothers’, the enlarged Fidea Holdings will, in effect, be little more than a school of minnows whose combined branch network of 149 branches, while nominally  covering the whole of the Tohoku Region, has little overlap; thus little opportunity to cut costs through closing competing branches or reducing the headcount significantly.  Significant inherent weaknesses in all three banks remain largely unaddressed.  It is difficult to see how simply integrating operations under a holding company structure will resolve them.While the announcement no doubt comes with the advance approval of the financial authorities, who are keen for regional banks to merge to strengthen their operations, it creates something of a dilemma for the Financial Services Authority (FSA) in that both institutions still owe taxpayers a combined total of ¥20 billion (US$181.8 million) in public funds.  Neither seems in a position to repay that capital any time soon, as we explain in this Insight.The Bank of Japan’s own ‘bad bank’, the Resolution &amp; Collection Corporation (RCC), is effectively the largest shareholder in both Fidea Holdings and Tohoku Bank through convertible preferred stock.  Will their debts be forgiven as part of the integration, or will the due date for the public funds repayment simply be extended for a further decade or so?  Will the RCC force conversion of its preferred stock into ordinary shares because of the merger, becoming overtly by far the largest shareholder?  What will be the impact of such a decision on investor sentiment for existing shareholders?  These are all important (and, for the time being, unanswerable) questions for investors.Foreign institutional investors own 12% of Fidea Holdings, and 4% of Tohoku Bank.  We fail to understand the attraction, given all the underlying weaknesses, as we detail in this Insight.  We view Friday’s ‘bounce’ in the stock prices of both Fidea Holdings and Tohoku Bank, on an unusual surge in trading volume, as a narrow ‘opportunity window’ for frustrated shareholders to exit both stocks and stay away thereafter.  That surge is over.  To those who were tempted to pile in we say:   Caveat Emptor! (May the Buyer Beware!).

Fidea Holdings (9713 JP):  A School of Minnows

Thematic (Sector/Industry)

After a somewhat euphoric start to September, with some Japanese bank stocks recovering as much as 20% from their mid-August lows on a global wave of ‘Value over Momentum’ buying, we expect the market to return sharply to reality in October, leaving Japanese bank stocks in danger of sinking back to those mid-August lows, if not lower.
Share price performance in the April-September 2019 1st Half of the FY3/2020 fiscal year showed negative returns across the Japanese banking sector for all but a handful of largely-illiquid small banks. October starts with an increase in Japanese consumption tax to 10%, and may end with Britain crashing out of the EU with no deal whatsoever. If investors move to ‘risk off’, with global markets overshadowed by concerns that the global economy may be teetering on recession as the US-China ‘trade war’ continues, we expect the Yen to strengthen as part of a ‘flight to safety’: not good for Japanese bank stocks generally.
The rise in consumption tax is a risky move for Japanese Prime Minister Shinzo Abe, as past increases have been followed by a collapse in consumer spending. Any attempts by the Bank of Japan to head off an economic slowdown by resorting to more quantitative easing spells bad news for the embattled Japanese banks, especially the regionals and secondary regionals which remain overly-reliant on interest income. It is all looking rather unpleasant. Caveat Emptor! (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks in 2019.

After a somewhat euphoric start to September, with some Japanese bank stocks recovering as much as 20% from their mid-August lows on a global wave of ‘Value over Momentum’ buying, we expect the market to return sharply to reality in October, leaving Japanese bank stocks in danger of sinking back to those mid-August lows, if not lower.
Share price performance in the April-September 2019 1st Half of the FY3/2020 fiscal year showed negative returns across the Japanese banking sector for all but a handful of largely-illiquid small banks. October starts with an increase in Japanese consumption tax to 10%, and may end with Britain crashing out of the EU with no deal whatsoever. If investors move to ‘risk off’, with global markets overshadowed by concerns that the global economy may be teetering on recession as the US-China ‘trade war’ continues, we expect the Yen to strengthen as part of a ‘flight to safety’: not good for Japanese bank stocks generally.
The rise in consumption tax is a risky move for Japanese Prime Minister Shinzo Abe, as past increases have been followed by a collapse in consumer spending. Any attempts by the Bank of Japan to head off an economic slowdown by resorting to more quantitative easing spells bad news for the embattled Japanese banks, especially the regionals and secondary regionals which remain overly-reliant on interest income. It is all looking rather unpleasant. Caveat Emptor! (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks in 2019.

Japan

The Bank of Iwate, Ltd. is a regional bank that mainly operates in Iwate prefecture and its surrounding area.  The Bank provides banking services such as deposits, loans, and exchange transactions.  The Bank of Iwate also provides other financial services including credit cards, leasing, and data processing.

Bank Of Iwate (8345 JP)

JAPAN ACTIVISM: Silchester Target Shiga Bank Dings the Div Proposal Badly

Silchester launched a small activist action against four banks this spring. Shiga Bank was one. They asked for a special div at the AGM. Rebuffed....

Travis Lundy

JAPAN ACTIVISM: Silchester AGM Effort Fails But Bank of Iwate (8345) Is Cheap As Chips

Bank of Iwate did not see Silchester succeed at the AGM. None of Silchester's AGMs were successful. But this one is cheap, and decent. It will...

Travis Lundy

JAPAN ACTIVISM: Silchester Goes After Bk of Iwate - Cheaper Than Chips

Bank of Iwate is the smallest (so far) of Silchester Int'l Investors' regional bank AGM proposal letters. It owns 11%. This one is tough too, but...

Travis Lundy

Fidea Holdings (9713 JP): A School of Minnows

Fidea Holdings (8713 JP) has announced that Iwate-based Tohoku Bank (8349 JP) will become a wholly-owned subsidiary in October 2022, in an all...

J. Brian Waterhouse

Japanese Banks: A Chill Wind in October

After a somewhat euphoric start to September, with some Japanese bank stocks recovering as much as 20% from their mid-August lows on a global wave...

J. Brian Waterhouse