• Daiwa Securities will become Aozora’s biggest shareholder
  • Aozora posted first loss in 15 years after US property turmoil

Daiwa Securities Group Inc. shares tumbled after the firm said it will take a stake in Aozora Bank Ltd., which just suffered its first loss in 15 years.

Shares of Japan’s second-biggest brokerage fell as much as 6.4%, the most since April 2022. Aozora shares were trading 5.8% higher, the most in more than two months.

Daiwa will buy about 51.4 billion yen ($330 million) in newly issued shares from Japan’s Aozora, giving it roughly 15.6% of voting rights, the companies said Monday in a filing. This would make it the bank’s biggest shareholder, according to data compiled by Bloomberg.

Aozora shocked the market in February with losses on its portfolio of office property loans in the US. The mid-sized bank had also drawn market attention after a Japanese activist fund became one of its biggest shareholders. City Index Eleventh, a fund with ties to Japan’s most prominent activist investor Yoshiaki Murakami, has built an 8.9% stake in the bank.

For Daiwa, “we see the potential rise in earnings volatility, for instance from the risks associated with the bank’s US real estate and its equity investments, as a cause for concern,” according to Citigroup Inc.’s analyst Koichi Niwa. Longer term, the deal may improve service offerings for Daiwa’s retail and corporate clients, Niwa said.

Daiwa and Aozora plan to cooperate in four areas: wealth management, real estate, mergers and acquisitions and startups. The bank will also appoint a candidate nominated by Daiwa to the board as an outside director.

Aozora president Hideto Oomi said the capital tie up was unrelated to City Index Eleventh’s investment in the bank. The fund declined to comment on the deal.

“The banking environment has been changing,” Oomi said at a briefing on Monday. “We have always considered partnerships with those who would complement what our group lacks and lead to growth.”

The bank posted a loss of about 50 billion yen for the year ended March 31. That compares with a profit of 8.7 billion yen a year earlier.

Written by:  and  — With assistance from Yasutaka Tamura @Bloomberg

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