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No. 364, January 2000

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American Companies in Japan


FINANCIAL SERVICES

No more definitive proof exists of the fundamental transformation underway in Japan's huge financial services sector than the government's basic agreement to sell nationalized LONG- TERM CREDIT BANK OF JAPAN, LTD. to an international consortium organized by RIPPLEWOOD HOLDINGS LLC (see Japan-U.S. Business Report No. 361, October 1999, pp. 20-21). Under the terms of the preliminary arrangement, which is expected to be finalized in March 2000, NEW LTCB PARTNERS C.V., as the group of global financial institutions acquiring LTCB is called, will pay $9.7 million for the 2.4 billion common shares of bank stock now held by Japan's Deposit Insurance Corp. The consortium also will pump close to $1.2 billion into LTCB to replenish its depleted capital. This will be accomplished through the purchase of new common shares. For its part, the government will spend at least $35.9 billion to clear the bad loans from LTCB's portfolio, thereby leaving New LTCB Partners with a package of loans that are considered sound. Among the financial services providers that believe that they jointly can turn around LTCB, which has assets in excess of $97.1 billion, are GE CAPITAL CORP., MELLON FINANCIAL CORP., PAINEWEBBER GROUP INC., the investment arm of TRAVELERS GROUP INC. and DEUTSCHE BANK AG. These companies and others participating in New LTCB Partners have recruited a list of notables, both Japanese and foreign, to be outside directors on the "new" LTCB's board of directors. The bank also will have a high-power team of senior advisers.

More evidence of the changes reshaping Japan's financial services sector is the announcement that NASDAQ Japan, an over-the-counter market for high-growth venture businesses, will debut as a separate section of the Osaka Securities Exchange as early as mid-2000. The NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. and its equal partner in NASDAQ JAPAN PLANNING CO., INC., big Internet player SOFTBANK CORP., worked out this memorandum of understanding with the OSE (see Japan-U.S. Business Report No. 362, November 1999, p. 20). Under the pending plan, the OSE will provide clearance and settlement services for the NASDAQ Japan market as well as market surveillance. It also will review applications from companies interested in listing their shares on NASDAQ Japan. In addition, Japan's number-two stock exchange will establish a data center and a communications center, plus it will set up a network linking more than 100 market participants in Japan to NASDAQ Japan. Among the other strengths that the OSE brings to the table is its computerized trading system, which will enable NASDAQ Japan to start operations sooner than the original target date of the fourth quarter of 2000. However, a new trading system will be installed by early 2001 as part of NASD's international rollout of an advanced platform. In time, NASDAQ Japan will allow Japanese investors to invest in NASDAQ-listed stocks, index products and other securities and derivatives. At launch, though, NASDAQ Japan will give investors the chance to participate in the initial public offerings of promising Japanese start-ups.

On-line investing in Japan still is in its infancy, but the main American players in this field as well as major Japanese financial services providers want to be positioned for growth that they hope will duplicate what is happening in the United States. The latest pairing joins TD WATERHOUSE GROUP, INC. and BANK OF TOKYO-MITSUBISHI, LTD., Japan's biggest commercial bank. The New York City company, the world's second-largest discount broker, will have a 45 percent interest in BTM-TD WATERHOUSE SECURITIES CO., LTD., which will offer individual investors such on-line financial services as discount brokerage services and equity trading. The joint venture, which will be staffed initially by 50 people, is eyeing a spring 2000 launch. The partners are talking to two BTM affiliates — TOKYO-MITSUBISHI PERSONAL SECURITIES CO., LTD. and KOKUSAI SECURITIES CO., LTD. — about participating in BTM-TD Waterhouse. Among other U.S. companies hoping to ride the growth in the in-line brokerage business in Japan are DLJDIRECT INC., the on-line brokerage unit of DONALDSON, LUFKIN & JENRETTE INC., E*TRADE GROUP, INC. and CHARLES SCHWAB & CO., INC.

Corporate America also sees money to be made in the financial advisory services market in Japan. The world's top accounting firm, PRICEWATERHOUSECOOPERS LLP, has just moved into this field, setting up a subsidiary in Tokyo to facilitate mergers and acquisitions and business turnarounds, particularly of banks and insurers. PWC FINANCIAL ADVISORY SERVICES CO., LTD., PwC's fifth subsidiary in Japan, is starting off with eight partners and 100 employees. It expects to have revenues of $30 million in the year through June 2000 and $40 million the following year. PwC FAS already has served as the lead adviser to ARTEMIS SA in the French firm's takeover of bankrupt AOBA LIFE INSURANCE CO. .....A heavyweight team also plans to go into the M&A advisory services business. Major broker/investment banker LEHMAN BROTHERS INC. and BANK OF TOKYO-MITSUBISHI, LTD. have reached basic agreement to tie up in this field and perhaps related ones (see Japan-U.S. Business Report No. 362, November 1999, p. 20). The pending partners did not give any time frame for when they expect to work out the details of their relationship.

STATE STREET BANK & TRUST CO. expects to have ready sometime in the first half of 2000 a localized version of its on-line foreign exchange trading system. Global Link enables institutional investors to trade currencies around the clock. It also allows them to buy or sell instantly. Boston's State Street expects Global Link, which already is used by more than 200 American and European institutional investors, to find a ready market in Japan as corporate and other investors try to minimize the foreign exchange risks associated with their often huge portfolios of offshore investments.

The financial problems of TOHO MUTUAL LIFE INSURANCE CO. allowed GE FINANCIAL ASSURANCE CO. to move lock, stock and barrel into Japan's enormous life insurance market in April 1998. That is when the consumer insurance arm of GE CAPITAL CORP. and Toho Mutual Life, through a complex deal, formed GE EDISON LIFE INSURANCE CO. to assume all new policy writing from the midsize insurer as well as almost all of its nationwide marketing staff. Toho Mutual Life was left with its existing policyholders' contracts and investment assets. That proved to be too much for the insurer, which collapsed in June 1999. Since then, the Life Insurance Policyholders Protection Corp., the industry's safety net organization, has been looking for a company to take over the policies and related assets. Enter GE Edison. Pending various approvals, expected to be received by March 2000, it will gain 1.6 million new policyholders and some $20 billion in assets. The PPC will contribute an estimated $3.6 billion as part of the transfer of the policies to GE Edison. Guaranteed returns will be slashed before then and early surrender fees will be added. For its part, Richmond, Virginia-headquartered GEFA will pump roughly $590 million into GE Edison to ensure that its solvency margin remains strong once it assumes the Toho Mutual Life policies.

AMERICAN EXPRESS CO. is partnering with YANASE & CO., LTD. to offer customers of the foreign car and truck dealer credit-card and asset-management services. Cardholders will be able to charge their purchases to their AmEx cards, which will have no credit limit. They also can obtain financial services from the Japanese operation of AMERICAN EXPRESS FINANCIAL ADVISORS INC. Moreover, for an extra $50 a year, cardholders will have access to emergency road services from Yanase, which sells GENERAL MOTORS CORP. vehicles among other foreign brands. A free e-mail service will be offered in the spring.

The spring 1999 decision by big equipment lessor COMDISCO, INC. to put more emphasis on buying and leasing back to semiconductor makers in Japan equipment already in their facilities (see Japan-U.S. Business Report No. 356, May 1999, p. 19) has paid its first major dividend. Under a four-year deal arranged by INDUSTRIAL BANK OF JAPAN, LTD., electronics giant NEC CORP. sold to Rosemount, Illinois-based Comdisco equipment worth about $271.8 million that was installed last fall at its Yamagata prefecture wafer-fabrica-tion plant and then leased it back. The transaction, which reportedly enabled NEC to recapture basically what it had paid for the equipment, was part of the big semiconductor manufacturer's restructuring plan.

An exchange rate of ¥103=$1.00 was used in this report. aaaaa

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