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Morningstar | Sale of Kabu and Jibun Stakes Would Aid Flexibility of MUFG Internet Strategy Without Giving Up Much

The Nikkei reported that Mitsubishi UFJ Financial Group, or MUFG, is holding negotiations to sell some of its stakes in Internet brokerage kabu.com and Internet-only bank Jibun Bank to mobile carrier KDDI. If these sales to KDDI take place, they would not affect our fair value estimate for MUFG, which remains JPY 797, 0.64 times book value and 38% above yesterday's closing price.

Kabu.com generates about 0.4% of MUFG's total net profit and 10% of the net profit of Mitsubishi UFJ Securities Holdings, the intermediate holding company for MUFG's various securities operations. More than 90% of the profit of Mitsubishi UFJ Securities Holdings comes from MUFG's Japanese joint ventures with Morgan Stanley, which generate around 4-5% of MUFG's total net profit. Separately, another 15% or so of MUFG's total net profit comes as equity-method revenue from its 24% stake in Morgan Stanley. Hence, we see the kabu.com business as quite peripheral to MUFG's core strategy for its securities business, which hinges on collaboration with Morgan Stanley in Japan and for cross-border business. Unlike in the mid-2000s when MUFG bought kabu.com, the firm now also appears to us to be ex-growth. Its share of retail trading value has topped out around 9% while leaders SBI Securities and Rakuten Securities continue to take share and together control more than half the market.

Jibun Bank, already a 50-50 joint venture with KDDI, is even smaller in terms of its contribution to MUFG, generating only about 0.1% of total net profit. Although it has more than 3 million customer accounts, the size of its customer deposits is still only around JPY 1 trillion, a fraction of rival Internet banks SBI Sumishin, DaiwaNext, Sony Bank and Rakuten Bank. In our view, the participation in ownership of such a second-tier Internet bank has barely contributed to MUFG's strategy to adapt its retail business for the Internet era and potentially created conflicts, so a sale to KDDI would seem appropriate.