In Japan, Mizuho-Rakuten deal benefits both firms
For one, it brings power to its digital operations, for the other a much-needed injection of funds. But it doesn’t change a grim operating environment.
Mizuho’s decision to take a 19.99% stake in Rakuten Securities represents a coming together of establishment and upstart, hastened by a fetid operating market. It is a deal that Japan’s financial markets industry will watch closely.
The ¥80 billion ($552 million) deal, announced on October 7, achieves two things.
For Mizuho, it brings power and digital savvy to an online brokerage operation that has been hard for the bank, like all the big three in Japan, to achieve organically. Rakuten’s eight million accounts are understood to be much younger on average than the general Mizuho demographic and far keener for digital platforms than traditional face-to-face brokerage services.
For Rakuten Group, owner of Rakuten Securities, it brings badly needed capital. Rakuten founder Hiroshi Mikitani’s attempts to transform his enterprise from an e-commerce group to a mobile telecoms player has come with enormous expense, stubborn operating losses and a more than 40% year-to-date share-price decline.
Rakuten needs money – hence its decision to attempt the float of its digital banking unit in the worst market conditions for a decade – and this partial sale will help. The beleaguered stock has climbed 4% climb since the news broke.
There is also the possibility of partnership: the two companies plan to collaborate on asset management consulting and on the distribution of equity and bond offerings from Mizuho’s investment banking arm.
So far, so good. But that doesn’t change an extremely difficult environment.
This deal mirrors Sumitomo Mitsui Financial Group purchasing 10% of SBI Holdings, the biggest internet brokerage in Japan, in June. SBI, in turn, has said it plans to axe trading fees on domestic equities, which may push Rakuten Securities to do the same, cutting off a key source of income.
That is leaving aside the fact that the grim performance and uncertainty of Japan’s stock market, like most worldwide, has put many retail investors off participation until there is some sense of recovery.
Still, Mizuho knows that one of its greatest enemies is Japan’s demographic situation, with an ageing population that tends not to spend, and therefore it is right to be targeting new customers where it can. A joint statement by the two companies says they “aim to leverage the power of attracting customers from a wide range of generations.”
And Rakuten got a good price for its stake – three times book – at a time when it really has no alternative but to raise capital. The question for Mikitani is whether enough can be raised to hold Rakuten’s fort while they wait for the mobile business to turn profitable.