These are the minutes of the meeting held on November 24, 2015 . The materials that were distributed at the meeting can be downloaded at the bottom of this entry.
[Ikeo, Chairman] “Now it is the scheduled opening time. So I’d like to open the third Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code. Thank you very much for taking the time from your busy schedule.
As written in the meeting agenda, today we will discuss issues around cross-shareholdings. In the previous meeting, we discussed the board. Naturally, it does not mean our discussion on the topic is over. The secretariat will thoroughly sort out issues raised in the previous meeting, and then we will discuss the topic once again, or 2-3 more times. So today’s topic is issues around cross-shareholdings.
First, the Financial Services Agency, in the capacity of the secretariat, will explain initiatives of the three major-bank groups. Following that, we will hear two guest presentations. Mr. Masatoshi Matsuzaki, Chairman of the Board of Directors at Konica Minolta, Inc. will talk about corporate initiatives first. Then Mr. Hiroki Sampei, Director of Research atFidelity International and a steering committee member at the Forum of Investors Japan, and Mr. Ryusuke Ohori, Chief Investment Officer of the Japan Research Driven Process Team at JPMorgan Asset Management (Japan) Ltd. and a steering committee member at the Forum of Investors Japan too, will talk about “Opinion on Cross-shareholdings”, which was published by the Forum of Investors Japan in September.
Now I’d like to start the proceedings. First, I’d like to ask the Financial Services Agency representative to explain initiatives of the three major-bank groups. [Ishida, Director of Banks Division I] I’m Ishida from Banks Division I, Supervisory Bureau.
It’s my pleasure to be here.
We distributed A4-sized material indicated as “Explanatory Material”. I’ll explain in accordance with this material.
Please open the material to the first page. This is an excerpt from ‘Financial Monitoring Report’ -2- published by the Financial Services Agency in July 2015. You can see various charts on it. Compared to G-SIFIs in Europe and the US, the three major-bank groups have a higher rate of shareholdings to equity capital. This means that particular attention needs to be paid to the impact on equity capital due to a decline in the stock price. Later on page 4, we included a chart showing changes in the equities held for business relationship purposes over time. It has been a problem for quite a long time.
Please take a look at the small line chart on the upper right on page 1. The red line represents ratios of shareholdings to equity capital among the three major-bank groups. In calculating the ratio, the denominator is Tier 1 capital, and the numerator is the market value of shareholdings. The line shows an increasing trend. Of course, the recent rise in market value is a significant factor, but even if we rule out such a factor, compared to the ratio of shareholdings to equity capital among G-SIFIs in Europe and the US as shown by the blue line, as I just mentioned, the ratio among the three major-bank groups is much higher. Naturally, in case of a drop in the stock price, this part will be affected in the form of a reduced market value.
The bar chart on the lower right shows the current state of equity capital in terms of Common Equity Tier 1 (CET1) ratio. The bar on the left represents CET1 ratio of the three major-bank groups; and the bar on the right represents the ratio of G-SIFIs in Europe and the US. Looking at these two bars, we get an impression that they are almost comparable. However, the bar in the middle represents the three major-bank groups’ CET1 ratio after deducting net unrealized gains on stocks, which is lower than CET1 ratio of G-SIFIs in Europe and the US. So you can see the net unrealized gains on shareholdings contributes to making their CET1 ratio compare well with that of G-SIFIs in Europe and the US.
As you know, in the past, especially in the turmoil of the financial system, economic/market downturns affected financial conditions of financial institutions through a drop in stock price, and restricted sufficient function of financial institutions (so-called occurrence of procyclicality). Partly because of that, in the past, various measures have been taken to reduce shareholdings held by financial institutions….”
Read the remainder of the minutes: – Minutes (PDF:401KB)
Materials that were distributed:
Material 1 (PDF:241KB) – Explanatory Material
Material 2 (PDF:53KB) – Our response to Principle 1.4
Material 3 (PDF:644KB) – Investors’ Evaluation and Expectations on the Companies’ Response to the Corporate Governance Code
Material 3-1 (PDF:965KB) – Report on the First/Second Investors Forums
Material 3-2 (PDF:808KB) – Opinion on Cross-Shareholdings
Opinion (Submitted by Uchida member) (PDF:137KB) – Comments for the Third Follow-up Council Meeting of the Stewardship Code and Corporate Governance Code
Opinion (Submitted by Toyama member) (PDF:402KB) – Opinion Concerning “Cross-Shareholdings (Mutual Shareholdings)”