Daiwa Securities Group Inc. said it has agreed to buy a stake in Aozora Bank Ltd. from a fund with ties to Japan’s most prominent activist.
The deal puts an end to months-long speculation over potential moves by the fund, which has not made public demands on the bank.
Daiwa will buy the shares from City Index Eleventh, a fund linked to Yoshiaki Murakami and Aya Nomura, who is Murakami’s daughter. For Daiwa, the investment is a bet on an industry where many banks have forecast record earnings following the end of negative interest rates by Bank of Japan.
“As interest rates rise, the banking business is going to become more profitable,” said Masahiro Yamaguchi, a senior market analyst at SMBC Trust Bank. “From Aozora’s perspective, a stable major shareholder will enhance stability.”
Support from Daiwa will help Aozora as it crafts a new strategy. In February, the bank shocked the market with losses on its portfolio of office property loans in the US. Its shares were hammered and it lost one-third of its value in two days. The stock is still down 22% for the year compared with a 35% gain in the Topix banking index.
As part of their alliance, Daiwa and Aozora plan to cooperate in four areas: wealth management, real estate, mergers and acquisitions and startups.
Daiwa will pay 2,415.5 yen per share, according to company’s spokesperson, making the total investment about 27.9 billion yen ($177 million). Daiwa’s total stake in Aozora will rise to 23.95%. In May, Daiwa said it would acquire a stake in Aozora for about 51.4 billion yen, giving the lender fresh capital after its first loss in 15 years.
Daiwa’s shares fell as much as 2.3% to 1,285 yen and Aozora gained as much as 3.7% to 2,465 yen.
Aozora will also appoint a candidate nominated by Daiwa to the board as an outside director.
