SBI Failed to Sell Its Assets

With Former Colleague Masayoshi Son, Kitao Asked Manabu Miyasaka of Yahoo Japan to Buy Everything Other than Securities and Bank. The Answer was No.

October 20, 2012

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An odd meeting was held with strange participants.

The host of the dinner was Yoshitaka Kitao of SBI, the person FACTA has been criticizing. In early September, he requested a meeting. A former SBI insider gave this information to FACTA.

Three more people other than Kitao attended. One was Masayoshi Son of Softbank, and other being Manabu Miyasaka, newly appointed CEO of Yahoo Japan, and one more top brass. Kitao must have asked Son to join the meeting. Softbank is the largest shareholder of Yahoo Japan, and Kitao expected an influence of Son, to whom Kitao helped to finance in his cash-strapped 1990’s. The ex-Yahoo guy who used to be in SBI arranged Miyasaka to attend the dinner. In a way, Kitao was in a reunion meeting.

Why these people met in this timing. The answer was simple. Kitao’s target was not Son, but Manabu Miyasaka, the 44 year-old CEO of Yahoo. Kitao is not a kind of person making a plea, so he must have said: “What about an idea to buy SBI’s asset except for securities and bank?” Kitao has an absolute confidence in his business prowess, and he cannot beg any person, and Son and Yahoo guys must have been an easygoing party for him. In a nutshell, Kitao wanted to sell every asset except for SBI Securities and Sumishin SBI Net Bank, a joint venture with Mitsui Sumitomo Trust Bank. He has been boasting his SBI Group as a financial conglomerate, but he wanted to sell every business to Yahoo Japan except for crown jewels.

This is a déjà-vu. Yes, this scene reminds us of the last phase of Yamaichi Securities in 1997. Yamaichi, who eventually decided to shut down, was running with negative equity, and the auditing firm was made accomplice, and they tried to sell the company in vain.

Kitao needed Masayoshi Son as a supporter. Even though he did not mentioned, but Kitao must have prayed for Son’s recommendation.

As we reported in the last issue, SBI’s investee company, Hyundai Swiss Deposit Bank of Korea has been taking advantage of being misunderstood as a related company of Softbank. Again in this meeting, Kitao wanted to rely on Son.

What did Miyasaka answer?

“We don’t need any of those”. Miyasaka did not have any dealings with Kitao in the past, thus his answer was blunt. Having been sitting next to them, Son must have been silent. His brain was occupied with the acquisition of e-Mobile, the fourth largest mobile operator in Japan, Sprint Nextel (3rd largest in the U.S.), and Metro PCS Communications (5th largest in the U.S.). Total acquisition cost well exceeds 2 trillion yen. Son’s mind must have been focusing on the gigantic plans.

He must not have any more interest with SBI who frame up earnings with a supplement company, SBI Pharma. Miyasaka too, has nothing to do with SBI’s business, when his main business of PC-portal site is in retreat with smart phones.

The informant provided further details of the asset sale. At the same time, SBI was trying to sell its subsidiary, SBI Insurance, looking for a buyer. Kitao himself was involved in the sale of core business. It is nothing but a déjà-vu of Yamaichi saga.

FACTA immediately contacted Yahoo, and found out the meeting was indeed held. Masahiro Inoue, former CEO of Yahoo was not there, as he was out in foreign country.

The fortune of Son and Kitao changed course. When Kitao was playing the no.2 of Son, Softbank Investment, the predecessor of SBI formed “Softbank Contents Fund” in 1997. The fund owned Morning Star Japan and UT Starcom, two jewels, but suddenly these two shares were transferred to a venture capital fund run by Softbank itself. The investors of the “Softbank Contents Fund”, with minimum investment of 100 million yen, claimed with anger. Son replied; “that was done by Kiichan (Kitao)”, and Kitao said; “that was judged by Son-san”. Some investors seriously considered a lawsuit, but gave up.

How Kitao was watching the face of Son, who used to be an “inseparable ally”.

Profit-Frame up in September End

Kitao did not have time to be introvert. Soon the second-quarter earnings announcement would be due. He must create numbers for the end of September. His financial conglomerate is nothing but a book-cooking group. This time around, it was SBI Insurance.

SBI Holdings invested 6 billion yen to SBI Insurance in September 28th, and it sold 19.9 %( 540,000 shares) of SBI Insurance to Webcrew in October 1st, with proceeds of 1.62 billion yen. SBI has invested total of 22.1 billion yen to this online insurance company since 2006. Net asset at the sale was 12.2 billion. The corporate value of the insurance company was only at 6.5 billion yen. We have more to tell.

SBI was to provide 1 billion yen worth of Webcrew’s acquisition money by buying new shares of Webcrew, either 10% of market capitalization or 1.62 billion yen whichever is small. As Webcrew’s market capitalization was at 10.1 billion yen, it could not buy the insurance company losing money with such juicy conditions.

Poor SBI. Unless it provides such generous terms, it cannot frame up year-end accounting. SBI Capital Solutions and SBI Japan Next Securities were used in same manner. In case of SBI Capital Solutions, the buyer was not named in the disclosure. Same lack of transparency as Homeo Style (now Nano Style) which FACTA reported in the April issue. Homeo Style is now deeply in negative equity. SBI has outstanding loan of 1.5 billion yen to it.

This company is the terminal cancer patient. Life line of SBI is SBI Note attracting retail investors with a bit higher coupon. In order to keep the credit rating, SBI needs to avoid red ink. In October 11th, SBI Note amounting to 10 billion yen was issued. Do Daiwa Securities, rating agency R&I, and auditing firm Deloite Tomatsu continue to admit such a shenanigan?