Morningstar | Sumitomo Mitsui Trust to Take 49% Stake in UBS Japan Wealth Management Business
Sumitomo Mitsui Trust Holdings, or SMTH, will take a 49% stake in UBS' Japan wealth-management business, to be split off from UBS Securities Japan and moved to a new joint venture 51% owned by UBS. Under the agreement between SMTH and UBS, this will not occur until around 2021, so in the meantime, the two companies will also set up a 50:50 joint venture this year that will focus on new customer acquisition, such as by holding seminars and introducing "total wealth management" services to high-net-worth individuals in Japan.Global surveys of high-net-worth individuals often exclude Japan entirely or exclude it from the growing Asia-Pacific region, as the wealth-management business remains tightly controlled by local firms and has been difficult for global players to penetrate. HSBC exited the market in 2012, selling its business focusing on individuals with more than JPY 200 million in net investable assets to Credit Suisse. Both UBS and Credit Suisse are active in Japan, but their market share is not as large as it is elsewhere in Asia and pales in comparison to local leaders like broker Nomura. The extended timetable of the deal between SMTH and UBS may reflect wariness about sharing client information and know-how, combined with the recognition that both sides lack critical capabilities on their own. Recently, Nomura has announced branch closures and other changes as the traditional methods it used to maintain its dominance in the wealth-management business are increasingly losing effectiveness as wealth passes down through inheritance to a younger generation. These changes present an opportunity for SMTH that an alliance with UBS could help to exploit.
We reiterate our no-moat rating on SMTH and fair value estimate of JPY 5,000, which is 25% above the current price. We think its asset management and fiduciary services businesses are moaty but the group lacks scale in commercial banking compared with the mega-banks.
Sumitomo Mitsui Trust Holdings is a holding company engaged in the management of Sumitomo Mitsui Trust Group Companies. Co.'s main business activities are banking, asset management and administration, and real estate. Co.'s banking business offers retail banking services throughout Japan; wholesale banking services to corporate clients; and marketable financial products for investment and risk management needs Co.'s asset management and administration business provides various products including pension plan for institutional investors and investment trusts primarily for individual clients. Co.'s real estate business offers a full line of real estate related transaction services.
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