Mitsubishi UFJ Financial Group will spend over $910 million to raise its stake Acom Co to more than a third, financial sources said, throwing a lifeline to the struggling consumer lender while boosting its business in the troubled but potentially lucrative sector.
Japan's biggest banking group will seek to more than double its stake from the current 15 percent, two people in the financial industry with direct knowledge of the deal told Reuters. Shares in Acom soared nearly 9 percent on the news. Japan's consumer finance sector is reeling from tougher regulations approved in 2006 lowering the maximum interest rate that companies can charge and after courts forced them to return interest rate payments to borrowers considered illegally high.
Acom now charges an annual rate of up to 18 percent, compared with 27.4 percent previously. "It is becoming clearer which consumer lenders will survive and which won't," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.
"Acom will now survive with Mitsubishi UFJ's backing." Shares of Acom are down 15 percent from a year ago, though they have gained 35 percent so far this year. The Mainichi newspaper reported that Mitsubishi UFJ would seek to raise its stake in Acom to 40 percent at a likely cost of around 140 billion yen ($1.3 billion).
If Acom becomes more than one-third owned by Mitsubishi UFJ, the bank would have veto power over major decisions. Akino said the move, which mirrors steps by other Japanese banks, was positive for Mitsubishi UFJ in the long term as it would be more efficient to take a bigger stake in a consumer lender, which can yield high profit margins, than start one from a scratch. "Banks couldn't really engage in consumer lending before, even though it's very profitable, because the industry had many problems," he said.
"But it seems about time now in light of the demand for these services and the background the sector has in society ... Banks probably won't be able to avoid leading the consumer lending business from now on." Another fund manager who asked not to be named said the bank also likely aims to boost its presence among retail clients through the move.
Sumitomo Mitsui Financial Group Japan's third-largest bank, owns about 20 percent stake in moneylender Promise Co Ltd and last year bought a 32 percent stake in credit card firm OMC Card Inc to bolster its consumer finance business.
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