EUR 850.00 For Business Accounts Only

Morningstar | Sumitomo Mitsui Trust Has a Unique Business Portfolio

Sumitomo Mitsui Trust Holdings has a unique business portfolio within Japan’s financial industry; while there are officially still 15 entities classified as trust banks by Japanese regulators, the others are all relatively minor units of larger financial groups following deregulation in the late 1990s and a wave of subsequent mergers. SMTH is the only listed group for which the trust bank subsidiary remains the core business. It differs from overseas custodian banks such as State Street and Bank of New York Mellon in that it remains a hybrid between a specialist custodian or asset-management company and a regular commercial bank. Commercial banking accounts for slightly more than half of SMTH’s total profits, while fiduciary service business constitutes around 30% and real estate more than 10%. Due to the global Basel framework and pressure from domestic regulators concerned about potential conflicts of interest arising from simultaneous operation of commercial banking and fiduciary services businesses, we expect SMTH to constrain its banking assets from growing any larger than their current size, with the result that the weighting of commercial banking should gradually fall and the weighting of fiduciary services business should gradually rise over our forecast horizon and beyond. SMTH focuses on high-net-worth individuals who can be customers across its specialized loan, trust, real estate, and investment-management products, and it has fewer branches than the megabanks or the largest regional banks, often located in relatively affluent areas and slightly larger than standard mass-market bank branches in Japan. As such, SMTH is less immediately affected by popular lifestyle changes related to the proliferation of smartphones than other Japanese banks and faces less pressure to downsize its branches and cut costs. Its business mix including fiduciary services and real estate also means it has been less exposed to narrowing net interest margins amid prolonged low interest rates. It could benefit disproportionately in a reflationary scenario that would boost its asset-management and real estate businesses.