SBI Creates Mid-Level Holding Companies to Conceal Bad Subsidiaries

Takeshi Natsuno Fled the Sinking Ship of Captain Kitao. Strange Capital Restructure Means SBI is in Mess.

June 20, 2012

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Undoubtedly SBI is in turmoil, and making moves. It was in May 20th, that the publisher of FACTA clamored in his blog: “Recommendation of Surrender to SBI Top Brass Managers”.

Having accepted our recommendation, or recovered from brainwash, in May 29th.Takeshi Natsuno, the outside director of SBI and a professor of Keio University, decided to be on the list of retiring directors in the incoming shareholders meeting of June 28th.

FACTA sent an inquiry letter to Natsuno, including the issue of Gree which is criticized for speculative nature of its games. He did not reply on issues related to SBI, citing that a lawsuit was going on between SBI and FACTA. His formal answer might have been this retirement from the board. The first surrender? Could be, but it was too late.

He is an accomplice of SBI’s intolerable crime in the stock market, of which we reported in April issue (a red-ink Homeostyle removed from consolidation) and May issue (a red-ink supplement subsidiary SBI Ala Promo , now SBI Pharma, was valued at 72 billion yen).

Concealing Connected Party Transactions

Two days after the board reshuffle, SBI announced share buy-back of 2 billion yen. On the following day, it also announced a creation of mid-level holding companies, a strange move.

According to official explanation, SBI is to achieve an efficient management of money and forex in its asset management business, and to realize further synergy with other core business such as securities, banking, and insurance. It established SBI Capital Management and SBI Financial Services, two mid-level holding companies. Prior to this, the group did an inscrutable move in holding structure. For example, SBI Card. SBI Holdings directly owned 97.8% of it, but 50.2% was moved to a mid-level holding company SBI Hong Kong Holdings, and 49.8% moved to SBI UK Limited. The British company does not have real business. Why SBI moves that way? It does not want to reveal the contents of loss-making subsidiaries, we would conclude.

Autock One, of which SBI owned 50.6%, was moved 50.5% to the Hong Kong mid-level holding company. SBI Fund Bank, a research company for mutual funds, got its 100% moved to the e-Research. As we described in the previous issue, e-Research is a ghost-like company, and 100 billion yen was injected by SBI with short-term lending and underwriting of notes. Why SBI does such change of holding structure, and creating mid-level holding companies? It wants to conceal connected party transactions. Think about the e-Research. It can be used as a conduit of clandestine money transfers, but the move must be disclosed in the connected party transaction table at convocation notice of shareholders’ meetings.

For example, SBI Securities, the brokerage subsidiary, wrote in its Yukashoken Hokokusho that it lent 80.9 billion yen to SBI Holdings. In the previous term, the amount was 83.9 billion, and the one year before, it was 118.5 billion. SBI Securities played a role of main bank for SBI Holdings. SBI Group has a joint venture bank with Mitsui Sumitomo Trust, Sumishin SBI Net Bank. Is that healthy that a brokerage unit supplying money to the parent?

Let us move back to the mid-level holding companies. If SBI Financial Services enters between the transaction between SBI Securities and SBI Holdings, SBI Securities would become a grandchild company, and the lending may not be subject to a reporting on the convocation notice as connected party transaction. If such concealment takes place, the murky SBI dealings would be further buried in dark….

The audacious holding structure change and concealment by mid-level holding companies… SBI tries to hide shameful deeds and loss-making units. The farce is comical, but there certainly is a limit, and another flaw comes into surface.

The loss-making subsidiary, SBI Ala Promo was artificially valued at 72 billion yen, thanks to NEXYZ, a TSE-1st section listed company led by Takami Kondo. The basis for such an outrageous valuation was the new round of equity finance at 1,028,500 yen per share, conducted in Spring-Summer of 2011. SBI Ala Promo raised equities in the past, always at 50,000 yen per share, but the 20-time lift in pricing was done, without any change in earnings. That was possible because NEXYZ subscribed it (totaling 194 shares, with 199.542 million yen).

Dubious Hakubi, a Kimono Learning School

We reported this story in the past issue. But a new fact proving an intimate relationship between SBI and NEXYZ emerged. NEXYZ Trade, a company established in March 2005, as an internet ad agency. In NEXYZ home page, the objective is unclear, but NEXYZ Trade home page identifies its role. The Chairman of this company is Yoshitaka Kitao, the head of SBI. NEXYZ owns 86%, and SBI owns 14% of the company. NEXYZ is not a third party, and it is indeed a part of SBI Group of companies.

I see. That explains why SBI BB Mobile Investment Limited Partnership bought 17% of NEXYZ subsidiary, Hakubi at 700 million yen in October 28, 2011. Hakubi is a learning school for young girls wishing to know how to wear Japanese kimono. That limited partnership is supposed to invest into mobile technology companies in Japan and the world. Why it did invest into a kimono school, out of its investment universe? SBI needed a mutual back scratching to NEXYZ, with Ala Promo investment by NEXYZ. This is nothing but a fraudlent and false accounting.