Expecting the birth of the world’s largest bank: the Japanese Post Bank

Guess which financial institution in Japan controls the largest market share in deposit savings? It is not Mizuho; it is not Mitsubishi UFJ; it is not Sumitomo either.

The No.1 position belongs to the Postal Service!  The Postal Savings System (PSS) has 230 trillion yen of deposits in their control, which makes it the largest “bank” not only in Japan, but in the world.

In order to push forward his plan to privatize the Postal Service, Japanese Prime Minister Koizumi called early election and won with land-slide margin. Now the privatizing plan is only a matter of implementation. According to the plan, the savings system will be spinned off from the mail service, and sold to the private sector.

What are the consequences of the privatization?

(1)   Well, we will have the largest bank in the world. I have to inform you though, that the privatization will take place in 2017, not now. Be patient, Koizumi has been pushing for this since 1979 when he served as a junior finance minister.

(2)   Japanese government bond yield will rise, because the profit-maximization oriented PostBank (I guess it will be called PostBank) will not put up with the low return in government bond, and they are going to dump them. Man, more than 20% of outstanding bonds are now in their hands, what will be the market impact, I don’t know.

(3)  U.S.treasury bond yield will go down, because the PostBank will certainly purchase t-bonds to rebalance their portfolio

(4)   I don’t think the PostBank will inject credit into the private sector of Japanese economy, unless they find a really ambitious foreign buyer.

(5)   What will you get if you buy and control the PostBank? Certainly you will obtain a nationwide 100% coverage network and a customer base of 85% of Japan's population. Accepting deposit is not a profitable business, but you can profit from selling other financial services. Eh, I think this is pretty close to Citigroup’s philosophy! Could Citigroup be a potential bidder for the Postal Savings System? It is too early to say, but there is always the possibility.

And who's next? China's Postal Savings System?