Daiwa Securities takes a 15% stake in Aozora Bank

Tokyo, May 13 (Jiji Press) – Daiwa Securities Group Inc. said Monday it will acquire a more than 15% stake in Aozora Bank for ¥51.9 billion under a capital and operating agreement.

The securities group will purchase new Aozora Bank shares to be issued under a third-party allocation scheme to make it a subsidiary based on the share method. An external director will be sent to the bank.

The move comes as the bank’s profits have been sluggish, partly due to a deterioration in the US real estate market. The bank aims to rebuild its management with resources from Daiwa Securities and strengthen its M&A and real estate activities by leveraging Daiwa Securities’ know-how and customer networks.

“As the demand for venture financing increases day by day, we will increase our capital to send resources to this area,” Hideto Omi, president of Aozora Bank, told a news conference that day.

On the same day, the bank reported a net loss of ¥49,904 million for the fiscal year ended in March, putting it in the red for the first time in 15 years.

The dismal result reflected an increase in reserves for potential losses on U.S. commercial real estate loans, as well as losses on foreign securities due to a rise in U.S. interest rates.

For the full year to March, the bank forecast net profit of ¥18 billion, which does not reflect the effects of the partnership with Daiwa Securities.

At the end of March this year, the bank’s largest shareholder was a fund linked to Japanese activist investor Yoshiaki Murakami, with a stake of around 9%. After Daiwa Securities takes a 15% stake, the fund’s stake is expected to fall below 8%.

Through the partnership, Daiwa Securities hopes to expand its asset management business by capitalizing on Aozora Bank’s customer base.