Japan Post stocks sink below IPO levels
The stock prices of Japan Post Holdings Co. and its two financial units have been hovering at a low level recently due to investors' concerns about the declining yields of government bonds, the main investment vehicles for the financial units. The stock prices initially remained firm after going public on Nov. 4, but have been on a downward trend since the beginning of January.
Shares of Japan Post Bank Co. - Japan Post Group's top earner - have fallen below their initial public offering price. The drop was prompted by the declining yields of government bonds, the bank's major means of investment.
If the stock prices of the three firms continue to drift at a low level, there may be a delay in the government's plans to sell more of its stock in Japan Post Holdings.
Japan Post Holdings reported Friday that its consolidated after-tax profit in April-December fell 5.3 percent from a year before to ¥383.1 billion. A main factor in the holding company's declining profits is the extremely low interest rate, which has made it difficult for Japan Post Bank to secure a profit margin through the investment of postal savings funds.
Japan Post Bank held about ¥178 trillion in deposits as of the end of December, which far surpasses the deposits of megabanks. However, Japan Post Bank is not allowed to operate a loan business for individual customers and companies in principle because it is indirectly financed by the government. The bank's main source of revenue is its gains from investments in securities.
Government bonds account for about 40 percent of the ¥205 trillion in assets Japan Post Bank uses for investment, so bond yields directly impact its profits.
The Bank of Japan decided to introduce negative interest rates at the end of January, amid growing concern about the prospects for the global economy. As a result of a rush to purchase Japanese government bonds as safe assets, yields dropped sharply.
Amid mounting concerns over the negative impact on Japan Post Bank earnings, its stock price has been sharply declining since the beginning of February.
Japan Post Bank's stock price as of Friday's close was ¥1,173, nearly 20 percent lower than its ¥1,450 IPO value.
According to calculations by SMBC Nikko Securities Inc., a 0.05 point decline in its profit margin will cause Japan Post Bank's overall profits to drop by about 20 percent. "[Japan Post Bank] is in a tougher situation compared to the megabanks," SMBC Nikko Securities analyst Masahiko Sato said.
Japan Post Bank, which holds highyield government bonds, will have to expand into low-yield bonds in the future. To diversify risk, it has also started increasing its investments in foreign government bonds.
Shares of Japan Post Insurance Co. were quoted as low as ¥2,178 during trading on Friday, which was below their IPO value of ¥2,200.
As with Japan Post Bank, the drop was attributable to the decrease in government bond yields, as Japan Post Insurance also uses government bonds as its main investment strategy. Japan Post Holdings' stock price has been declining in tandem with the worsening performance of its two group companies. The government plans to start selling its Japan Post Holdings stock in stages to lower its share of the stock from the current about 90 percent to around 33 percent.