The turmoil in Japan's financial industry is creating unparalleled opportunities for American financial services providers to move into the market. As a case in point, MERRILL LYNCH & CO., INC. disclosed that it is considering a plunge into the retail securities business. Such a step would make the world's biggest brokerage house the only foreign company selling stocks, bonds, mutual funds and other financial products directly to individual Japanese investors. In the current scenario, Merrill Lynch would take over a number of branches from bankrupt YAMAICHI SECURITIES CO., LTD. and hire some of its former employees. The company tried to build a retail network in the late 1980s, but it abandoned this effort in 1993. Since then, MERRILL LYNCH JAPAN INC. has built a strong presence in the institutional market, with offices in Tokyo, Osaka and Nagoya that employ roughly 1,000 people. .....In an unrelated development, the Ministry of Finance gave an investment management license to MERRILL LYNCH CAPITAL INTERNATIONAL MANAGEMENT CO. The company, which has operated in Japan since 1985, managed $899.2 million worth of discretionary investment funds at the end of 1996.
The local units of broker SMITH BARNEY INC. and investment banker SALOMON BROTHERS INC. will merge April 1 following the December purchase of Salomon Brothers by Smith Barney parent TRAVELERS GROUP INC. The combined Japanese operation will be the third-largest foreign brokerage company with a payroll of about 560, mostly from Salomon Brothers. Since both firms own seats on the Tokyo Stock Exchange and the Osaka Securities Exchange, Smith Barney will sell its memberships.
Mutual fund giant Fidelity Investments, part of FMR CORP., plans to build a facility in Tochigi prefecture, north of Tokyo, from which it will start a discount brokerage operation in 1999 as well as solicit customers over the telephone and handle buy/sell orders. The center, located in Takanezawa, will employ about 1,000 people. This announcement is just the latest indication of how Fidelity hopes to attract a bigger share of Japan's personal savings. At the end of 1997, the company already was managing the equivalent of about $2 billion for Japanese clients.
Not shy about using acquisitions to expand its Japanese business, GE CAPITAL CORP. will buy KOEI CREDIT K.K., a midsized consumer finance firm, from KOFUKU BANK, LTD., an Osaka-based regional bank that is saddled with a huge amount of bad loans. Koei Credit has 54 outlets, mainly in the Tokyo metropolitan area, and 430 employees. Its outstanding loans total $397.7 million. GE Capital's wholly owned subsidiary, MCS SERVICE K.K., actually will make the purchase. Tokyo-based MCS Service was formed from three consumer-credit companies that the world's largest nonbank financial institution bought in the mid-1990s.
CARGILL INVESTMENT JAPAN LTD., which is owned by the world's biggest grain trader, CARGILL INC., reportedly is talking with YAMAICHI FINANCE CO., LTD. about buying its loan and venture capital businesses. The nonbank finance affiliate of bankrupt YAMAICHI SECURITIES CO., LTD. has nearly $2.2 billion in loans outstanding. It also manages 10 venture capital funds with estimated assets of $173.1 billion. If a deal is finalized, Cargill would gain the infrastructure to offer an extensive array of financial services in Japan.
By the end of 1998, the bargain-hunting subsidiary of the real estate unit of investment banker GOLDMAN, SACHS & CO. expects to own $3.8 billion worth of real estate- backed bad loans. GOLDMAN SACHS REALTY JAPAN CORP., which believes that Japanese property prices soon will hit bottom and start to recover, already has bought $96.2 million in collateralized nonperforming loans from DIAMOND HOME CREDIT CO., LTD., an affiliate of BANK OF TOKYO-MITSUBISHI, LTD. The firm recently tied up with YASUDA TRUST & BANKING CO., LTD. to interest foreign buyers in commercial properties in Japan (see Japan-U.S. Business Report No. 338, November 1997, p. 14).
An exchange rate of ¥130=$1.00 was used in this report.