A Japanese bank has agreed to buy a minority stake in Rakuten Group Inc.'s online securities arm for 80 billion yen $552 million, a move by a tech company and bolster digital services.
The Japanese lender s brokerage unit will buy almost 20% of Rakuten Securities Inc., the companies said on Friday. The transaction is scheduled to be completed in November.
After a foray into Japan's mobile market, the deal comes after billionaire Hiroshi Mikitani announced plans to separate its securities and banking businesses.
Rakuten Securities Holdings is preparing for a stock listing, the parent company said in a statement. We believe that an alliance with a securities company will lead to an increase in the value of shares of both the company and Rakuten Securities Holdings. Since news of the deal emerged on Wednesday, Rakuten shares have climbed by 4%, paring this year s decline to 41%. Mizuho hasn't changed much in the past two trading sessions.
Japan's biggest banks have been struggling to build scale in their online securities businesses and compete with industry leaders like SBI Holdings Inc. and Rakuten. In June, Sumitomo Mitsui Financial Group Inc. agreed to take a 10% stake in SBI, the country's largest internet brokerage.
S&P Global Ratings said that Mizuho's investment will help increase revenue for Japan's third-largest bank since it can expand its base of younger customers who are beginning to build nest eggs.
Rakuten Securities and Mizuho Securities want to use the power of attracting customers from a wide range of generations, the companies said. They plan to collaborate in areas including asset management consulting and equity and bond offerings arranged by Mizuho.
Rakuten Securities has about 8 million accounts, compared to SBI's 8.8 million at the end of June, according to the companies. Like other Rakuten Group businesses, the brokerage has taken advantage of the popular loyalty points program of the internet retailer to draw in customers.
After Bloomberg reported on Mizuho's investment this week, Natsumu Tsujino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said a price tag of 80 billion yen for a 20% stake was too expensive.
Shin Tamura, analysts at Bloomberg Intelligence, said the price implies a hefty price-to-book ratio of almost three times, compared to 1.2 times for rival Monex Group Inc.
Tsujino said that Japan's online brokerage industry is likely to face tough competition ahead, given SBI's plan to scrap trading fees for domestic equities. She said Rakuten's profit is likely to be affected by the suspension of structured bond sales.