Japanese Banks: Taking profits, staying selective

Financials

Galliano's Financials Research

Victor Galliano has lightened positions in Japanese banks, retaining those with larger cross-holdings relative to market cap, which he expects to benefit under an easier-for-longer monetary policy. He argues that managements’ commitment to realise cross-holding value through disposals should be a key near-term driver of share performance. Despite potential delays to further rate hikes, lending rates and net interest margins have continued to rise since the end of NIRP, supported by low delinquency levels. Combined with attractive valuations, these trends should underpin higher medium-term multiples. Among large caps, he keeps Resona and Shizuoka as Buys (downgrading Mizuho to Neutral) and among mid-caps, maintains Buys on Iyogin, Hokuhoku and Hachijuni, while downgrading Hirogin to Neutral.

- 17 October, 2025

Japan’s financial sector is nearing a critical turning point

Financials

Astris Advisory Japan

While BOJ policy normalisation has boosted bank earnings expectations, it has also destabilised the JGB market and raised fears of a sovereign credit downgrade (risks reminiscent of the recent US downgrade by Moody’s). Japanese financials have absorbed nearly 50% of ETF inflows over the past year, but recent outflows suggest sentiment is shifting. Unrealised bond losses and rising fiscal concerns are mounting and the “Japan Premium” for USD funding could return. Neil Newman sees the sector as home to some of the market’s most crowded trades. He highlights Nomura as a short and flags Japan’s three megabanks (MUFG, SMFG, Mizuho Financial Group) as increasingly exposed to reversal risks.

- 13 June, 2025

SoftBank Group (9984)

Communications

Astris Advisory Japan

SoftBank to invest up to $40bn in OpenAI starting with a $10bn tranche this month of which it will fund 75% itself. It will source the funds from Mizuho Bank although the group has sufficient cash on hand already. SoftBank's LTV ratio increases from 12.9% at Q3 end to c.17%. It should be able to raise up to $46bn in funding through asset-backed finance and borrowing up to the 25% LTV level relative to commitments of c.$47bn (OpenAI, Ampere, Aug payment to SVF for ARM and the initial Stargate push). SoftBank will probably lose money this quarter but not so much it doesn’t end the year in the black. Vision Fund was down $1.1bn, largely on India weakness (-$1.2bn across its four public investments) with the rest of the portfolio moving sideways. The discount to NAV has widened slightly to 55% but remains well within the recent trading range. TP ¥11,000 (65% upside).

- 04 April, 2025

High conviction financials for 2025

Financials

Galliano's Financials Research

Bradesco, Hana Financial and Bank of Baroda are Victor Galliano’s top picks amongst the GEM banks due to deep value with positive returns catalysts, while his sell on premium-valued Nubank is due to fundamental return headwinds emerging. In the Japanese banks, Victor identifies Mizuho and Resona as key beneficiaries of higher benchmark rates going forward, alongside very attractive valuations and supported by strategic share portfolios. CME Group is his 2025 pick in global exchanges, as a "flow monster" with a very strong competitive position. PagSeguro is his deep value, contrarian pick in payments.

- 13 December, 2024

Kyoto Financial Group (5844)

Financials

Galliano's Financials Research

Kyoto Financial’s stakes in 3 key listed Japanese corporates are valued at over 85% of its market cap with its total equity holdings accounting for 130%+ of its market cap. However, management intends to retain the bulk of these positions, opposing the growing trend for Japanese listed companies to unwind crossholdings. Given this decision, combined with underwhelming fundamentals (e.g. not as well geared into rising domestic interest rates as peers; neither is it well exposed to potentially rising benchmark rates through BoJ deposits; and unattractive valuation), Victor Galliano is negative on the stock, preferring the likes of Resona, Mizuho and SMFG instead.

- 26 July, 2024

Norinchukin Bank is an outlier not a sector indicator

Financials

Galliano's Financials Research

The bank plans to sell JPY10trn of foreign government bonds, crystallising a chunk of the JPY2.19trn of unrealised bond losses, as it also looks to raise JPY1.2trn. In this note, Victor Galliano explores the bigger cap banks’ foreign bond holding and unrealised gains or losses, including those of Japan Post Bank. He believes Norinchukin is a sector outlier rather than big cap bank canary in the coalmine. Victor sticks with buys on Resona, Mizuho, SMFG and Concordia.

- 28 June, 2024

YCC relaxation adds fuel to the Japanese banks re-rating

Financials

Galliano's Financials Research

The latest BoJ adjustment to its yield curve control lifts the hard yield ceiling of 1% on 10-year JGBs, making it “a reference” and allowing yields to exceed it. 10-year JGB yields are close to 1%, with Japanese bond yields steepening further which is positive for Japanese banks, especially those with a high share of floating rate credit exposures. In Aug, Victor Galliano identified Resona, Mizuho and SMFG as his picks for a steepening yield curve. In Oct, he added Hachijuni as the deep value buy. Now, he adds Concordia for its high share of floating rate lending.

- 10 November, 2023