Japan-US Business Report LogoJapan-U.S. Business Report

No. 343, April 1998

Issue Index

American Companies in Japan


FINANCIAL SERVICES

The largest foreign-owned consumer finance company in Japan, the AIC CORP. subsidiary of ASSOCIATES FIRST CAPITAL CORP., soon will also have the title of the nation's sixth-biggest finance firm based on total receivables. The company has a pending agreement to buy 90 percent of DIC FINANCE CO., LTD., which ranks ninth in the local market, from DAIEI, INC. and some of its related businesses for around $620.2 million. Associates First Capital also will repay a $387.6 million loan that the supermarket chain made to the consumer lender. Although Osaka- headquartered DIC Finance, which has 204 branches and 1,100 employees across the country, was profitable in the year through February 1997, Daiei said that consumer finance fell outside its core retailing business. DIC Finance will continue to operate under its current name and management. With the acquisition, Associates First Capital, which has operated in Japan since 1979, will have more than 600 locations and 3,000-plus employees. Its Japanese net receivables will total $4.1 billion. It is the largest publicly traded finance company in the United States. FORD MOTOR CO., the Dallas firm's majority owner, is the process of spinning off its remaining Associates First Capital shares to the public.

American financial services providers continue to find growth opportunities in the problems of their Japanese counterparts. Investment manager FIDUCIARY TRUST CO. INTERNATIONAL, which said last year that it would move into the Japanese market to take advantage of the Big Bang financial deregulation, has tentatively agreed to buy SANYO INVESTMENT MANAGEMENT CO., LTD. from failed SANYO SECURITIES CO., LTD. Details of the takeover still have to be finalized. Sanyo Investment, capitalized at $3.1 million, managed $248.1 million worth of investments at the end of 1997. It is expected to be renamed FIDUCIARY TRUST INTERNATIONAL INVESTMENT ADVISORY INC. The prospective New York City parent manages close to $40 billion for individual and institutional investors.

Los Angeles-based CAPITAL GROUP INC., the number five in the U.S. investment management business, will help DAI-ICHI MUTUAL LIFE INSURANCE CO. affiliate DAI-ICHI SEIMEI CAPITAL MANAGEMENT CO., LTD. develop mutual funds invested in foreign stocks for sale through local brokerage houses. The partners later plan to add mutual funds based on Japanese stocks. They project close to $1.6 billion in annual sales. Capital Group, which managed roughly $350 billion in investments at yearend 1997, will also invest $387.6 million in foreign stocks for Dai-Ichi Mutual.

With the ban on wrap accounts scheduled to be lifted in the near term, SALOMON SMITH BARNEY INC. and NIKKO SECURITIES CO., LTD. have moved forward on their plan to offer this service to individual investors (see Japan-U.S. Business Report No. 335, August 1997, p. 12). First, they
formed GLOBAL WRAP CONSULTING GROUP CO. in Tokyo to assess the performance of mutual funds (or investment trusts, as they are known in Japan), particularly those offered by local managers, and to design wrap accounts, which give a brokerage house or an investment advisory firm the discretion to invest a client's money in a variety of financial instruments. Then, Salomon Smith Barney and Japan's second-biggest securities firm set up GLOBAL WRAP SERVICES CO., also based in Tokyo, to market wrap accounts to institutional investors. Customers who sign up for the service will have to give Nikko Securities roughly $38,800 to invest. They will be charged an annual commission based on the total amount invested.

The Ministry of Finance granted a brokerage license to the Tokyo branch of BRIDGE INFORMATION SYSTEMS INC. The New York City company's main business is providing global financial information to institutional investors, brokers and dealers, exchanges and corporations. It offers a Japanese-language financial news service to corporate customers in Japan as well as the original in English.

Two of the many name American companies reported to be interested in picking up properties serving as collateral for Japanese banks' nonperforming loans (see Japan-U.S. Business Report No. 342, March 1998, p. 15) presumably are the unnamed firms buying the equivalent of $3 billion or so in bad loans from SAKURA BANK, LTD. under a complex deal that is still relatively untested in Japan. Known in the United States as a loan participation plan, the big commercial bank will move a large portion of its soured loans off its books. However, these loans will remain in its name, and the bank still will be responsible for collecting on them. The U.S. participants are gambling that the value of the underlying real estate will recover in value rather than continue to fall.

With foreign exchange transactions projected to boom because of changes in the legal environment that occurred April 1, CITIBANK N.A. expects to find a ready market among banks, nonfinancial corporations and institutional investors for its on-line service that helps process the paperwork from foreign exchange trading. The FX Match system links clients' trading rooms through a network and automatically sorts buy/sell orders and checks them for clerical errors. That obviates the need for traders to verify orders by phone or fax and then exchange written confirmation. The Citibank service is said to save money for any client that makes more than 10 forex transactions daily.

MERRILL LYNCH & CO., INC. has the distinction of being the first foreign brokerage house to launch a yen-denominated commercial paper program in Japan. The Wall Street firm, which is in the process of building a nationwide retail brokerage business (see Japan-U.S. Business Report No. 342, March 1998, pp. 14-15), said its decision to issue the equivalent of $775.2 million in CP represented part of a strategy to diversify the company's global fund-raising. It also is a demonstration of Merrill Lynch's long-term commitment to Japan and local financial markets. The securities company noted that Japan's CP market has shown considerable strength. Japanese banks are underwriting the CP. .....For much the same reasons, MORGAN STANLEY & CO. announced plans for a big yen- denominated CP program. The major investment bank expects to raise the equivalent of more than $1.9 billion. It also is capitalizing on growth opportunities in Japan's financial services market. A consortium of eight American and European banks led by CITIBANK N.A. has set up a revolving credit facility equivalent to $542.6 million for NEC CORP. The electronics giant is able to draw on the line of credit at any time, thereby helping it to deal with the credit squeeze that has resulted from Japanese banks' reluctance to lend because of the impact loans have on capital/asset ratios at a time when they are trying to dispose of bad loans. While syndicated revolving credit facilities are common in the United States, they still are rare in Japan. BANKAMERICA CORP., CHASE MANHATTAN CORP. and MORGAN GUARANTY TRUST CO. are among the other syndication participants.

Having received a nonlife insurance business license from the Finance Ministry, ALLSTATE PROPERTY AND CASUALTY INSURANCE JAPAN CO., LTD. plans to begin operations in October. The company is a wholly owned subsidiary of ALLSTATE INSURANCE CO. Last November, the big American nonlife insurer sold most of its half interest in a local property and casualty insurance business to its partner, the Saison Group, having decided that an independent operation would better enable it to take advantage of opportunities emerging in Japan's insurance market (see Japan-U.S. Business Report No. 339, December 1997, p. 13).

The same possibilities persuaded GREAT AMERICAN INSURANCE CO. to open an office in Tokyo. The Cincinnati, Ohio-based nonlife insurer will study the casualty market before applying to MOF for a license to conduct business.

The top seller of cancer and elder-care insurance policies also is the first foreign insurer to have offices in all of Japan's 47 prefectures. On April 1, AMERICAN FAMILY LIFE ASSURANCE CO. opened branches in Nara, Saga, Shiga and Tottori prefectures. That gave Columbus, Georgia-based AFLAC, which moved into the Japanese market in 1974, 73 branches across the country.

Nonsmokers now can buy lower-cost life insurance policies from AMERICAN LIFE INSURANCE CO. The subsidiary of insurance giant AMERICAN INTERNATIONAL GROUP, INC. is the first company to offer such a policy. Club Nonsmoker reflects ALICO's strategy of using innovative products to capture business in Japan's currently slow-growth insurance market. It is the sixth new-to-the-market product ALICO has introduced in Japan.

TCW ASSET MANAGEMENT CO. is helping YASUDA FIRE & MARINE INSURANCE CO., LTD. develop new investment products for the Japanese market. The Los Angeles-headquartered company brings to the tie-up with Japan's number-two nonlife insurer its expertise in asset management as well as operations and management know-how.

Just 57 companies will be listed on the foreign section of the Tokyo Stock Exchange after LINCOLN NATIONAL CORP. ends trading of its stock in mid- June. At the peak in 1991, 127 offshore companies listed their shares on the TSE. The Ft. Wayne, Indiana writer of property casualty, health and other insurance policies, which listed its shares in December 1987, cited the now-familiar reasons of low turnover and high listing costs for its move.

An exchange rate of ¥129=$1.00 was used in this report.
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