A new benchmark has been established for the changes sweeping Japan's limping financial services sector and how American competitors are capitalizing on the openings. Financial services powerhouse TRAVELERS GROUP INC. will acquire a 25 percent stake in NIKKO SECURITIES CO., LTD., Japan's third-biggest brokerage house, for roughly $1.6 billion. That will be the largest investment to date by an American company in a Japanese financial institution. It will make Travelers the top shareholder in Nikko Securities, displacing BANK OF TOKYO-MITSUBISHI, LTD. Equally important, Travelers and the securities firm will establish a joint brokerage business in Tokyo capitalized at $1 billion. Nikko Securities will own 51 percent of NIKKO SALOMON SMITH BARNEY LTD., with Travelers' SALOMON SMITH BARNEY INC. investment banking/securities company putting up 49 percent of the capital but running the show. The Japanese partner effectively will transfer its investment banking and institutional trading operations to the partnership. All of Salomon Smith Barney's Japan-based businesses with the exception of its arbitrage trading unit will be folded into the joint venture, which will open its doors next January. Nikko Securities will hold onto its 125 nationwide brokerage offices and specialize in trades for retail customers. That network will afford Salomon Smith Barney the chance to sell its products to Japan's growing number of individual investors as well as give it access to many of the nation's biggest corporations. Overseas, Nikko Securities will close about two-thirds of its subsidiaries and offices by yearend and transfer their operations to Salomon Smith Barney. Earlier this year, the two companies formed a pair of businesses to assess the performance of investment trusts, or Japan-style mutual funds, and to market wrap accounts (see Japan-U.S. Business Report No. 343, April 1998, p. 13).
MERRILL LYNCH & CO., INC. which rocked competitors both in Japan and at home earlier this year by announcing plans to build a nationwide retail brokerage business using offices and employees of failed YAMAICHI SECURITIES CO., LTD. (see Japan- U.S. Business Report No. 342, March 1998, p. 15) merged its three Japanese asset-management companies effective July 1. Newly formed MERRILL LYNCH ASSET MANAGEMENT JAPAN CO., LTD. combines MERRILL LYNCH INTERNATIONAL CAPITAL MANAGEMENT CO., LTD., MERCURY ASSET MANAGEMENT JAPAN LTD. and MERCURY INVESTMENT TRUST MANAGEMENT CO., LTD. The 200-employee company manages more than $10.7 billion in corporate, institutional and retail assets, making it one of the biggest, if not the biggest, foreign asset-management business in Japan. The merger follows Merrill Lynch's acquisition last December of London-based MERCURY ASSET MANAGEMENT GROUP PLC.
One of America's major mutual fund managers, SCUDDER KEMPER INVESTMENTS, INC., has changed the name of its Japanese operation to reflect its new business direction. Effective July 1, SCUDDER STEVENS & CLARK JAPAN, INC., an investment advisory firm, became SCUDDER INVESTMENT JAPAN, INC. It applied to the Ministry of Finance for a license to market investment trusts. The company will use a variety of wholesale channels to sell its products, including banks and securities firms.
Japanese banks continue to introduce new investment vehicles developed with the help of American financial institutions and usually managed by them. For instance, SUMITOMO BANK, INC. is selling through its nationwide network a dollar- denominated commodity-type fund managed by MERRILL LYNCH & CO., INC. The securities company is guaranteeing the principal as well as a minimum annual dollar return of 2 percent on the five-year fund. Investors must put up at least $50,000. .....As another example, DAIWA BANK, LTD. and CHASE MANHATTAN CORP. codeveloped an investment trust for sale to individual and institutional investors. The top U.S. bank will invest the money in various financial instruments in the United States and Europe and guarantee initial investments on maturity of the seven-year fund. The minimum investment is about $7,100.
Specialized system software from HEWLETT-PACKARD JAPAN LTD. has enabled FUJI BANK, LTD. to offer a new service: settling foreign exchange transactions in yen for regional banks. From existing PCs, these financial institutions will be able to send the relevant information via the Internet to Fuji Bank's on-line settlement system. Regional banks will pay the big nationwide commercial bank commissions for taking this tedious job off their hands.
In a first for any state, the New York State Banking Department has opened an office in Tokyo. Its mission is to keep tabs on American financial institutions moving into Japan and other Asian countries to exploit the openings created by the region's financial turmoil and regulatory reform.
CITIBANK N.A., which sees tie-ups with regional banks as one important way to expand its business in Japan, has signed up MICHINOKU BANK, LTD. to market its financial services. The midsized bank is offering Citibank foreign currency deposit accounts and credit cards that are settled in dollars through branches in Aomori prefecture, Michinoku Bank's home base, as well as in Iwate prefecture and Hokkaido. Customers interested in Citibank's products obtain information from its marketing department via videophones installed at Michinoku Bank offices.
Another business-expansion strategy pursued by CITIBANK N.A.'s local operation is to offer services in conjunction with the postal savings system (see Japan-U.S. Business Report No. 342, March 1998, pp. 15-16). Starting in October, the Ministry of Posts and Telecommunications will issue Citibank debit cards to interested account owners. Cardholders will be able to use them at cash dispensers and automatic teller machines in 110 countries as well as at the post office's 24,000 cash machines around Japan. The tie-in with Citibank also will enable people to use the cards to pay for purchases at close to 1.8 million stores in 50 countries.
Next January, the credit-card affiliate of MYCAL CORP., Japan's fourth-largest supermarket chain, and MASTERCARD INTERNATIONAL INC. will issue what is billed as the world's first commercially available multipurpose smart card. Initially, the cards will work like credit cards, but electronic money and similar functions will be added later using the Multos electronic money operating system developed by Europe's Mondex consortium. MYCAL CARD INC. cardholders also will be able to charge up to about $360 at more than 300 Mycal Group stores without a signature.
San Francisco's EQE INTERNATIONAL INC., a specialist in earthquake risk management, has teamed with TOKIO MARINE & FIRE INSURANCE CO., LTD., Japan's top nonlife insurer, and MITSUBISHI CORP. to offer consulting and insurance in earthquake-prone Japan. Targeting companies putting up new buildings, the partners will use EQE's extensive data base and experience to calculate premiums based on the risk of earthquake damage and to advise clients on preventative design and construction methods. Tokio Marine will be in charge of the insurance side of the business, while Mitsubishi will be responsible for recruiting clients.
An exchange rate of ¥140=$1.00 was used in this report.