News Release


[Sumitomo Mitsui Financial Group, Inc.]Central Finance, Sumitomo Mitsui Financial Group and Mitsui & Co., Ltd. to Form Strategic Alliance in Consumer Finance Business(1/1)

The original texts of this press release are prepared in the Japanese language, and this translation is only provisional.

 

 

 

 

 

Central Finance Co., Ltd.

Sumitomo Mitsui Financial Group, Inc.

Sumitomo Mitsui Banking Corporation

Sumitomo Mitsui Card Co., Ltd.

QUOQ Inc.

Mitsui & Co., Ltd.

 

 

 

Central Finance, Sumitomo Mitsui Financial Group and Mitsui & Co., Ltd. to Form Strategic Alliance in Consumer Finance Business

 

 

 

TOKYO, April 27,2007 --- Central Finance Co., Ltd. (CF, President & Representative Director: Tatsuo Tsuchikawa), Sumitomo Mitsui Financial Group, Inc. (SMFG, President: Teisuke Kitayama), Sumitomo Mitsui Banking Corporation (SMBC, President: Masayuki Oku), Sumitomo Mitsui Card Co., Ltd. (SMCC, President: Koichi Tsukihara), QUOQ Inc. (QUOQ, President: Shinpei Nihei) and Mitsui & Co., Ltd. (Mitsui, President & CEO: Shoei Utsuda) today reached an agreement to establish a comprehensive capital and business alliance for developing one another乫s businesses centered on the consumer finance business.

 

 

1.   Purpose of the alliance

 

In recent years, the business environment of the consumer finance industry, including consumer installment credit and credit cards, has become increasingly severe. Consumer finance companies have been experiencing a shrinking consumer installment credit market due mainly to the spread of the use of credit cards and a rapidly changing credit card market arising chiefly from rising systems investments and heating-up of competition with companies from different industries entering the market. Furthermore, the industry is facing urgent issues such as overpayment refund claims and the revision of the upper limit on interest rates in association with the revision of the Money Lending Control Law. In addition, the momentum toward the revision of the Installment Sales Law is also growing. Under such circumstances, consumer finance companies乫 most pressing need right now is to overhaul their conventional operations.

 

Meanwhile, domestic consumer spending, totaling about 300 trillion yen, is on the rise thanks to the recovering economy, and the consumer finance market is expected to grow substantially over the medium to long term. In addition, consumer needs for varied settlement and financial services are increasing, reflecting the diversification of consumers乫 sense of values and lifestyles, development of IT and an expansion of new frontiers such as the small-amount settlement market. In order to strengthen their presence in the market, consumer finance companies are now required to quickly and flexibly provide financial solutions which meet the varying consumer needs.

 

With these recognitions of the current business environment, CF, SMFG, SMBC, SMCC, QUOQ and Mitsui (hereinafter the 乬alliance partners乭) today reached an agreement to enter into a strategic alliance in the consumer finance business. The alliance partners aim to provide quality products and services that accurately respond to customer needs. To this end, as strategic partners, the alliance partners will leverage this comprehensive partnership, utilize one another乫s special features, know-how and experience, brands, customer base, etc., which they have developed separately in their respective businesses of 乬consumer installment credit,乭 乬credit card,乭 乬banking,乭 and 乬trade.乭 Through this capital and business alliance, the alliance partners will also strive to further raise the value of their businesses.

 


2.   Outline of the alliance

 

CF, a credit company based in the Chubu region, is engaged in consumer installment credit and auto loans through its member stores, including major chain stores with nationwide networks and leading local companies. In the card business, CF has issued CF cards and other wide-ranging cards under alliances with railway companies, travel agencies, oil and automobile-related companies, department stores, shopping centers, etc. Hence, CF has an abundant lineup of products and a solid customer base in the consumer finance business.

 

SMCC, an SMFG group company, boasts a brand strength as one of Japan 乫s leading quality cards, and is actively engaged in businesses in new markets, such as small-amount settlements, and card processing on a consignment basis. QUOQ, with the largest transaction volume in the consumer installment credit industry, proactively promotes businesses, such as collection agency services using Japan 乫s largest network of cooperative financial institutions, and a unique, small-debt purchase program for bulk purchasing of large volume, small-lot accounts receivable and monthly tutorial fees. SMBC, with a broad customer base of about 26 million individual clients and a nationwide office and ATM networks, centered on the Tokyo Metropolitan and Kansai areas, is strong in settlement and finance services for individuals, consulting business, loans to small and medium-sized companies, and providing various financial solutions.

 

Mitsui is engaged in a broad range of operations both in domestic and in overseas markets, including consumer-related businesses, and is strong in providing comprehensive solutions with combined services such as marketing, financing, logistics, and risk management. Through these services, Mitsui has established a strong network of influential partners and affiliates in Japan and abroad and demonstrated its comprehensive capability based on a broad customer base and deep knowledge in each business domain.

 

Under the comprehensive partnership, the alliance partners will enhance, expand and develop their operational footings by capitalizing on their strength and leveraging each other乫s business resources. To achieve this, they will discuss and realize a broad range of business alliances, including those described below. Specific details of the business alliances will be deliberated at an 乬Alliance Promotion Committee,乭 which is planned to be established.

 

(1)     Outline of alliance between CF and SMCC

-     SMCC will help CF improve products and services, including gold and platinum card services.

-     CF will use its know-how to help SMCC strengthen its personal loan business

-     Both partners will cooperate with each other in the commercial card business.

-     Both partners will cooperate with each other to increase merchants using their sales office networks.

-     Both partners will consider jointly operating administration and systems departments and jointly developing next-generation systems.

 

(2)     Outline of alliance between CF and QUOQ

-     Both partners will cooperate across the board in the credit card business, including providing know-how on increasing card membership and raising card utilization rate as well as mutual cooperation in establishing business infrastructures.

-     Both partners will help each other in consumer installment credit and collection agency businesses.

-     QUOQ will provide CF with know-how on small-debt purchase program.

-     CF will provide QUOQ with know-how about personal loan business.

 

(3)     Outline of alliance between CF and SMBC

-     SMBC will introduce to its customers various CF products and services, including issuing of cards issued under alliances with other companies.

-     CF will introduce to its customers various SMBC products and services, including loans and settlement services.

-     SMBC will support CF in its fund raising and its use of financial services such as securitization of claims.

 

(4)     Outline of alliance between CF and Mitsui

-     CF and Mitsui will mutually introduce their products and services to their corporate customers and affiliated companies.

-     Both companies will consider jointly operating a credit card business and a consumer installment credit business overseas, centered on Asia .

-     Both companies will consider launching a new business by combining CF乫s know-how of financial products and services and Mitsui乫s business development capability and networks.

 

Taking advantage of the alliance, SMFG and Mitsui will promote collaboration in domestic and overseas consumer finance businesses by sharing their customer bases and know-how, introducing each other乫s products and services, implementing personnel exchange, and mutually utilizing business resources.

 

 

3.   Outline of capital alliance

 

In order to make the business alliance stronger and maximize its effect as well as to establish a long-term cooperative relationship, CF, SMFG, SMBC, QUOQ and Mitsui will execute a capital alliance as follows.

 

(1)     Investment in CF by SMFG, SMBC and Mitsui

SMFG, SMBC and Mitsui plan to acquire both common shares and convertible bonds issued by CF through a third-party allocation.

SMBC intends to convert the acquired convertible bonds into common shares after CF completes all the requirements of the Banking Law and other relevant laws.

Also, Mitsui may convert the acquired convertible bonds into common shares taking into consideration such factors as earnings results, business environment of CF and so on.

 

1)   Issuance of common shares by CF

i)       Number of shares to be issued: 31,638,000 shares

ii)      Aggregate amount of issue price: JPY 19,204,266,000

iii)     Company and the number of shares to be allocated:

a)      SMFG: 12,706,000 shares

(Amount to be paid: JPY 7,712,542,000)

b)      SMBC: 6,226,000 shares

(Amount to be paid: JPY 3,779,182,000)

c)      Mitsui: 12,706,000 shares

(Amount to be paid: JPY 7,712,542,000)

iv)     Payment date: May 14, 2007

 

After the issuance and purchase of common shares, SMFG乫s, SMBC乫s and Mitsui乫s shares of the total voting rights of CF will be approximately 10%, approximately 5% and approximately 10%, respectively.

 

2)   Issuance of convertible bonds by CF

i)       Total amount to be issued: JPY 19,500,000,000

ii)      Company and the amount of bonds to be allocated:

a)      SMBC: JPY 7,900,000,000

b)      Mitsui: JPY 11,600,000,000

iii)     Payment date: May 14, 2007

 

When all the convertible bonds are converted into common shares at the initial conversion price and combined with the common shares issued as described in 1), SMFG乫s, SMBC乫s and Mitsui乫s shares of the total voting rights of CF will be approximately 8%, approximately 12% and approximately 20%, respectively.  After the acquisition, it is planned that the nominees appointed by SMFG and Mitsui will become executive officers of CF.

The fund raised by CF through the capital alliance will be used for strengthening CF乫s financial base, such as increasing its capital and reducing debts; as well as for making investments indispensable for the strategic business development of CF, such as acquiring QUOQ乫s shares to be described in (2) , which is necessary for expanding CF乫s earnings base; and IT systems investment necessary for improving its operational efficiency and risk management.

 

 

(2)     Investment in QUOQ by CF

CF plans to acquire common shares of QUOQ worth JPY 7,500,000,000 through a third-party allocation.  New common shares will be issued and allocated to CF on the approval of the shareholders at the annual shareholders meeting of QUOQ.

In addition, CF and QUOQ will hold discussions on a merger by April 1, 2009, in order to maximize the synergy of the capital and business alliance and to further strengthen their profitability.

 

1)   Issuance of common shares by QUOQ

i)       Number of shares to be issued: 480,000 shares

ii)      Aggregate amount of issue price: JPY 7,500,000,000

iii)     Company and the number of shares to be allocated: CF 480,000 shares

iv)     Payment date: July 2, 2007

 

After the common share issuance, QUOQ will be an equity method affiliated company of CF who will have approximately 20% share of its total voting rights. After the acquisition, nominees appointed by CF will become executive officers of QUOQ.

 

 

4. Schedule

 

April 27, 2007 :                  Conclusion of capital and business alliance agreement

May 8, 2007 :                      Conclusion of CF shares and underwriting agreement for convertible bonds

                                            Conclusion of underwriting agreement for QUOQ shares

May 14, 2007 :                    Issuance of common shares and convertible bonds by CF

June 21, 2007 :                    Approval of new share issuance at the annual shareholders meeting of QUOQ

July 2, 2007 :                       Issuance of common stocks by QUOQ

 

* Each procedure will be implemented in accordance with stipulations of relevant laws and regulations.

 

 

5. Earnings outlook

 

The effects of this alliance on each company乫s earnings are unclear as of April 27, 2007 and will be announced, if necessary, following the deliberation of the alliance partners.

 

 

 

 

 

 


(Appendices)

 

 

- Overview of Central Finance Co., Ltd.

Corporate name

Central Finance Co., Ltd.

Main businesses

Credit card, consumer installment credit, personal loan, guarantee and money collection agency service

Establishment date

January 28, 1960

Location

3-20-27 Nishiki, Naka-ku, Nagoya-shi, Aichi-ken

Representative

Tatsuo Tsuchikawa, President and Representative Director

Capital

9,686 million yen (as of September 30, 2006 )

Employees

2,407 (consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratio

Japan Trustee Services Bank Ltd. (8.44%)

Mitsubishi-Tokyo UFJ Bank Co., Ltd. (4.84%)

The Chuo Mitsui Trust and Banking Co., Ltd. (4.83%)

(as of September 30, 2006 )

 

 

- Overview of Sumitomo Mitsui Financial Group, Inc.

Corporate name

Sumitomo Mitsui Financial Group, Inc.

Main business

Management of the affairs of banking subsidiaries and of non-bank subsidiaries, and ancillary functions

Establishment date

December 2, 2002

Location

1-2 Yurakucho 1-chome, Chiyoda-ku, Tokyo

Representative

Teisuke Kitayama, President

Capital

1,420,877 million yen (as of September 30, 2006 )

Employees

41,936 (consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratios

Japan Trustee Services Bank Ltd.  (trust account) (6.06%)

The Master Trust Bank of Japan, Ltd. (trust account) (5.56%)

The Chase Manhattan Bank NA London (2.66%)

(as of September 30, 2006 )

 

 

- Overview of Sumitomo Mitsui Banking Corporation

Corporate name

Sumitomo Mitsui Banking Corporation

Main business

Banking

Establishment date

June 6, 1996

Location

1-2 Yurakucho 1-chome, Chiyoda-ku, Tokyo

Representative

Masayuki Oku, President

Capital

664,986 million yen (as of September 30, 2006 )

Employees

16,686 (non-consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratios

Sumitomo Mitsui Financial Group, Inc. (100.00%)

(as of September 30, 2006 )

 


- Overview of Sumitomo Mitsui Card Co., Ltd.

Corporate name

Sumitomo Mitsui Card Co., Ltd.

Main businesses

Credit cards, loans, guarantee and gift cards

Establishment date

December 26, 1967

Location

4-5-15, Imahashi, Chuo-ku, Osaka-shi, Osaka

Representative

Koichi Tsukihara, President

Capital

34,000 million yen (as of September 30, 2006 )

Employees

1,914 (non-consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratios

Sumitomo Mitsui Financial Group, Inc. (66.0%)

NTT DoCoMo, Inc. (34.0%)

(as of September 30, 2006 )

 

 

- Overview of QUOQ Inc.

Corporate name

QUOQ Inc.

Main businesses

Consumer installment credit, personal loan, guarantee and money collection agency service

Establishment date

April 5, 1978

Location

Sumitomo Fudosan Mita Twin Buildings West Hall, 3-5-27 Mita, Minato-ku, Tokyo

Representative

Shinpei Nihei, President

Capital

1,000 million yen (as of September 30, 2006 )

Employees

1,484 (non-consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratio

Ginsen Co., Ltd. (21.3%)

Sumitomo Mitsui Banking Corporation (13.8%)

Sumitomo Mitsui Card Co., Ltd. (10.0%)

(as of September 30, 2006 )

 

 

- Overview of Mitsui & Co., Ltd.

Corporate name

Mitsui & Co., Ltd.

Main business

Trading company

Establishment date

July 25, 1947

Location

2-1 Otemachi 1-chome, Chiyoda-ku, Tokyo

Representative

Shoei Utsuda, President and CEO

Capital

295,797 million yen (as of September 30, 2006 )

Employees

42,018 (consolidated, as of September 30, 2006 )

Main shareholders and
their equity ratios

The Master Trust Bank of Japan, Ltd. (trust account) (10.12%)

Japan Trustee Services Bank, Ltd. (trust account) (8.9%)

Mitsui Life Insurance Co., Ltd. (2.66%)

(as of September 30, 2006 )

 


 

- Overview of the business alliance

 

- Overview of the capital alliance

 

 

- Voting rights ratio in CF after completion

Allocation

After issuance of common shares

After conversion of convertible bonds

 

No. of voting rights

Ratio of voting rights

No. of voting rights

Ratio of voting rights

SMFG

12,706

10.00%

12,706

7.98%

SMBC

6,226

4.90%

19,240

12.09%

Mitsui

12,706

10.00%

31,816

19.99%

 

Note:      The voting rights ratio after the increase in common shares is based on the ratio as of September 30, 2006 and the following conditions:
(1)the increase in the number of voting rights (504 shares), as a consequence of Central Finance Aomori having delivered the CF shares to a third party during the period from October 1, 2006 to March 31, 2007, and;
(2)the increase in voting rights planned to be allocated to a third party this time.

The voting rights ratio after the conversion of convertible bonds is calculated based on the increase in voting rights  in the case all convertible bonds are converted at the initial conversion price.

 




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