The Japan Post IPO – Now That’s A Ponzi!

The global financial Ponzi gets crazier by the day, and more often than not the mad men who run Japan Inc. are front and center. But even Japan’s whacko Prime Minister, Shinzo Abe, has outdone himself with the Japan Post Holdings IPO.

We could start with the fact that after trading up roughly 25% from the offer price in an apparent fit of nationalistic mania, the holding company and its two subsidiaries were valued at $140 billion. Needless to say, that sporty valuation was not owing to the fact that Japan’s 24,000 unit postal savings system experienced a sudden spurt of growth.

In fact, revenue has been falling for years, and net profits have been nothing to write home about. Indeed, the group’s offering release indicated an expectation that Japan Post Holdings’ net income would drop 23% to 370 billion yen in the year ending next March 31.

Stated differently, Abe & Co have foisted on Japan’s retail public, which got upwards of 75% of the shares sold this week, the vastly inflated stock of a dying public bureaucracy which by its own admission is now “earning” 33% less than it did in FY 2013.

And this would not be the first time.  Back at the height of the dotcom bubble, the Japanese government sold the retail public 2.1 trillion-yen ($18 billion) worth of shares of Japan’s wireless telecom services provider (NTT DoCoMo). In perhaps a foreshadowing of what comes next, the company’s implied total market cap of $220 billion at the time now stands at just $78 billion. That is, about $140 billion of bottled air was foisted upon the Japanese citizenry.
DCM Chart

Despite its insane overvaluation, at least DoCoMo was in an industry with a future. By contrast, the principle asset of Post Holdings is the Japan Post Bank, which is a relic of the Meiji restoration created 1875.  Needless to say, its millions of Japanese depositors are almost entirely over 65, and its President is an ex-BOJ bureaucrat who is, befittingly, 79 years old.

Nevertheless, the Post Bank alone was valued at $60 billion at the close of the first day of trading, representing about 20X its most recent year net income of about $3 billion. But it’s no Goldman Sachs or even Citigroup. In fact, its financial statement is a testament to the depredations of ZIRP, as it has been practiced in Japan by nearly two decades.

To wit, nearly 75% of the Post Banks $1.8 trillion of assets reported for FY 2014 were  in Japanese government debt——from which it earned the grand sum of 93 basis points.