Dalton Calls for `Massive' Buybacks, Board Seat at Shinsei Bank

(Bloomberg) -- Dalton Investments stepped up its pressure on Shinsei Bank Ltd., continuing a years-long effort to bring change at the Japanese lender.

The U.S. investment firm is proposing that its co-founder, Jamie Rosenwald, be put on Shinsei’s board, according to a copy of a letter to Shinsei provided by Dalton to Bloomberg. Dalton also renewed its call for the bank to carry out “massive” buybacks and shift its compensation program toward the use of restricted shares for senior management and directors.

Dalton, which is headquartered in California and manages $4 billion, started publicly calling for change at Shinsei in March 2017, saying the lender is massively overcapitalized and undervalued by the equity market.

Shinsei is the only major Japanese bank that hasn’t repaid its banking-crisis bailout. The Financial Services Agency wants to receive 350 billion yen ($3.1 billion) when the state sells its stake in Shinsei, which is 18 percent of outstanding shares, according to data compiled by Bloomberg. Dalton says its recommendations would help Shinsei boost its share price to a level that would enable it to repay the government, which is estimated to be 7,450 yen, according to the letter. Shinsei shares closed Friday at 1,557 yen.

Dalton believes these recommendations, “if carried out with diligence, will cause the share price to rise substantially, and allow the Japanese taxpayer to finally be repaid,” Rosenwald wrote in the letter.

Shinsei confirmed it has received the letter. “We are taking it seriously as a valuable opinion from a shareholder,” said Hiroyuki Hatano, a spokesman for the bank.

Dalton made one shareholder proposal at last year’s AGM, to link executive directors’ pay more to the stock price. The recommendation failed to pass, but 25 percent of shareholders voted in its favor.

This year, Dalton is attempting to put Rosenwald, a value investor who has owned Japanese shares since 1972, on the board. Rosenwald has strong experience of investing in financial institutions and serving on their boards, and would be willing to carry out the role for 1 yen per year, he wrote in the letter. Dalton intends to submit the recommendation to appoint Rosenwald to the board as a shareholder proposal for this year’s Shinsei AGM, expected to be held in June, if Shinsei responds negatively to the letter, Rosenwald said.

Dalton would like Shinsei to spend at least 90 percent of its net profit on buybacks every year as long as its shares trade below book value, according to the investment firm. Shinsei trades at 0.46 times book value, according to data compiled by Bloomberg.

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