TOKYO (06/30/2000) - Japan's largest Internet investor, Softbank Corp., signed the final agreement Friday with two of its partners and the Japanese government to buy the failed Nippon Credit Bank. The group hopes to create an innovative bank appropriate to the Internet era, capable of offering a mix of online financial services and conventional banking services.
The deal follows several months of turmoil for Softbank, once the darling pioneer of Japan's fledgling Internet machine. The company's share price plummeted in recent months as its Internet investments began to look shaky.
This acquisition, in particular, has been viewed as a make-or-break deal for Masayoshi Son, Softbank's president.
The acquisition has raised internal concerns at Softbank, where some executives have worried about the large debt the company is taking on. Outsiders have wondered whether Softbank, which lacks solid commercial banking experience, can revive NCB.
In an effort to allay industry concerns, Softbank recruited an ex-Bank of Japan director, Tadayo Honma, as NCB's new chief executive. A former VP of Fuji Bank is a managing member and consultant for the company.
The consortium will pay the government's Deposit Insurance Corp. $9.5 million to buy all outstanding NCB common shares, and about US$950 million for NCB's capital base, according to Japan's Financial Reconstruction Commission.
Softbank will finance nearly half of the purchase cost, while its partners, Tokio Marine and Fire Insurance and Orix, a leasing firm, will each pay nearly 15 percent. The bank's new president, Tadayo Honma, said he hopes to start offering services on August 1, when the transfer of ownership will be complete.
The companies also revealed that Santa Clara, California-based Silicon Valley Bank would be paying about 0.25 percent toward the purchase of NCB, making it one of several minor foreign investors, including Lehman Brothers Holdings (LEH) and Cerberus Partners. The foreign investors will take a combined 12.8 percent stake in NCB, and will send several board members to the new bank.
"Silicon Valley Bank and other foreign investors can provide us their financial know-how as to how we can serve high-growth companies," said Softbank President Masayoshi Son at the press conference.
The final seal of agreement did not affect Softbank's shares on Friday's trading much. On the Tokyo Stock Exchange, the shares of Softbank lost 0.69 percent, ending at 14,400 yen, slightly affected by losses on the U.S. Nasdaq market. Orix ended at 15,650 yen, 1.63 percent lower than Thursday's ending price. Tokio Marine was unchanged, ending at 1,224 yen.
NCB, originally known as Nippon Fudosan Bank or "Japan Real Estate Bank," made loans to real estate companies during the first 20 years after its 1957 founding. Many of the companies became insolvent when Japan's economy went into recession during the late 1980s. After a number of loans failed in 1998, the bank was nationalized pending a sale.
If the new deal goes well, the new bank could loosen Japan's rigid banking sector, which is still saddled with huge debts despite a decade-long effort to write off bad loans at the expense of Japanese taxpayers.