Ja­pan Post stocks sink below IPO lev­els

The Pak Banker - - MARKETS/SPORTS -

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.

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