Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

J. Brian Waterhouse has been covering the Japanese financial sector as an analyst continuously since 1976, working for CLSA, Japaninvest, Rabobank, HSBC Securities, James Capel, Marine Midland Bank of New York and National & Grindlays Bank.  He has been ranked No.1 overall in Japanese banks research in Japan by Asiamoney for 6 of the past 9 years and was runner-up in 2015.  He was awarded the coveted Starmine prize as top Japanese bank stock picker in 2012 and 2014 and was runner-up in 2013.  He frequently appears on TV, radio and in international print media as a commentator on Japanese banking.

Senior Bank Analyst - Japanese Banks

Nanto Bank  (8367 JP):  Gravity Defying

Nanto Bank (8367 JP):  A None Too Cheerful Outlook

Windamee Research

Japanese Banks

Equity Bottom-Up

In our previous Smartkarma Insight featuring <a href="https://www.smartkarma.com/insights/nanto-bank-8367-jp-gravity-defying" target="_blank" data-smartkarma-citation="insights:34370" rel="noopener">Nanto Bank  (8367 JP):  Gravity Defying</a>, Nara Prefecture’s sole remaining local bank, we noted the sharp rise in the bank’s share price and expressed concern that such investor enthusiasm for the stock could not be justified by the fundamentals.  The shares closed on Friday 30 October 2020 at ¥1,848, down 32.1% since that Insight.  While valuations have improved as result of that price decline, we think it is still too early to buy.Nanto Bank is a classic example of bank management ‘kicking the can down the road’ and ignoring serious structural issues until almost past the point of salvation.  Nanto Bank’s problems are not simply the result of past unwise investments in highly volatile foreign securities derivatives as a means of shoring up dwindling income from ‘traditional’ business.  Nanto Bank is overstaffed, has too many branches relative to available business, and its operations are inefficient.  Loan growth had effectively ground to a halt prior to the COVID-19-influenced April-June 2020 quarter, while the bank has lost money on its core operations for 12 years straight without effective remedial action being taken by management or any acceptance of accountability for successive shortcomings.The bank faces significant challenges.  Management is clearly aware of this, and is finally taking action, but the path to recovery is going to be a long one: arguably longer than most foreign investors’ usual investment time-horizon.Caveat emptor! (May the buyer beware!) remains our advice to those investors who might be tempted to buy in at current levels.

In our previous Smartkarma Insight featuring Nanto Bank  (8367 JP):  Gravity Defying, Nara Prefecture’s sole remaining local bank, we noted the sharp rise in the bank’s share price and expressed concern that such investor enthusiasm for the stock could not be justified by the fundamentals.  The shares closed on Friday 30 October 2020 at ¥1,848, down 32.1% since that Insight.  While valuations have improved as result of that price decline, we think it is still too early to buy.Nanto Bank is a classic example of bank management ‘kicking the can down the road’ and ignoring serious structural issues until almost past the point of salvation.  Nanto Bank’s problems are not simply the result of past unwise investments in highly volatile foreign securities derivatives as a means of shoring up dwindling income from ‘traditional’ business.  Nanto Bank is overstaffed, has too many branches relative to available business, and its operations are inefficient.  Loan growth had effectively ground to a halt prior to the COVID-19-influenced April-June 2020 quarter, while the bank has lost money on its core operations for 12 years straight without effective remedial action being taken by management or any acceptance of accountability for successive shortcomings.The bank faces significant challenges.  Management is clearly aware of this, and is finally taking action, but the path to recovery is going to be a long one: arguably longer than most foreign investors’ usual investment time-horizon.Caveat emptor! (May the buyer beware!) remains our advice to those investors who might be tempted to buy in at current levels.

南都銀行（8367 JP）：重力が勝つ