Few American financial services providers have been more aggressive than GE CAPITAL SERVICES CORP. in taking advantage of the market openings created by either deregulation or business problems (see Japan- U.S. Business Report No. 342, March 1998, p. 15). In the space of a week, the world's largest nonbank financial firm signed a deal that will give it a major position in the Japanese consumer finance field and moved to acquire an interest in a local aircraft and equipment leasing company. First, GE Capital Services agreed to buy the consumer finance business of LAKE CO., LTD. The Osaka-headquartered company is Japan's fifth-largest consumer finance provider, with more than 1.4 million customers, 564 offices across the country and nearly $3.8 billion in loan receivables. In November, a yet-to-be-formed GECS subsidiary will take over the Lake name, trademark and consumer finance business infrastructure as well as the 2,700 or so Lake employees involved in this part of the company's business. At that time, the nonconsumer loan business of Lake will begin operating under a new name. Financial terms were not disclosed, but GE Capital Services reportedly will lend Lake money both directly and indirectly to repay its $5.7 billion in bank loans. The American company moved into Japan's consumer financial services market in mid-1994. Its last acquisition in this area was the December 1997 purchase of a midsized consumer finance firm (see Japan-U.S. Business Report No. 340, January 1998, p. 14).
Days after GE CAPITAL SERVICES CORP. finalized the Lake transaction, corporate executives confirmed that the company was in talks with MITSUBISHI CORP. about possible equity participation in affiliated RYOSHIN LEASING CORP. The trader owns 51.8 percent of the equipment leasing company. MITSUBISHI TRUST & BANKING CORP. is the other big investor, with a 34.5 percent share. Japanese news sources suggested that Ryoshin could be converted into a joint venture majority-owned by GECS. The U.S. firm already is in the Japanese automotive leasing business thanks to a fall 1996 acquisition, but some kind of tie-up with Ryoshin would enable GE Capital Services to broaden its reach to the big aircraft and machinery leasing market.
By the end of July, MERRILL LYNCH JAPAN SECURITIES CO., LTD. planned to have open 29 of the 33 locations making up its new nationwide network of brokerage offices. In addition to offering typical brokerage services to individual investors, the branches initially are selling 24 investment trusts (mutual fund-like products), about half of which invest mainly in Japanese securities. The news earlier this year that MERRILL LYNCH & CO., INC. would launch a retail brokerage business in Japan using employees and offices of failed YAMAICHI SECURITIES CO., LTD. as its vehicle (see Japan-U.S. Business Report No. 342, March 1998, pp. 14-15) provided the first clues to the new Japan market strategies of U.S. financial services competitors.
CITIBANK N.A. also plans to expand its Japanese retail business but through internal growth. Within the next year, the big commercial bank will open 11 more branches, increasing its network to 30 offices. Among the new locations are Sapporo, Sendai, Kyoto, Hiroshima and Fukuoka, plus several additional offices in the Tokyo metropolitan area. Most of Citibank's 19 current branches are in the greater Tokyo and Osaka areas. The company apparently decided that the problems engulfing its domestic competitors make the near term the opportune time to expand. The pending December end of the ban on direct sales of investment trusts by banks also is said to have influenced its decision.
Banks' forthcoming freedom to market investment trusts on their own also was behind the agreement in principle by PRUDENTIAL INSURANCE CO. OF AMERICA and MITSUI TRUST AND BANKING CO., LTD. to form an equally owned investment trust management company. To be headquartered in Tokyo, PRUDENTIAL-MITSUI TRUST INVESTMENTS CO., LTD. initially will sell a range of investment trusts through the Japanese bank's network of 57 branches. Later, the partners expect to tap other distribution channels. At first, no doubt, many of the joint venture's investment options will be products developed by Prudential, which manages $89 billion in mutual fund assets. In time, however, Prudential-Mitsui Trust Investments plans to design its own investment trusts. Whatever the source of the prospective company's offerings, they will be packaged with financial planning advice and investment education something that has been in short supply for the typical Japanese investor.
Like other local banks, BANK OF YOKOHAMA, LTD. is preparing for the coming end of the prohibition on over-the-counter sales of investment trusts by teaming up with a number of American specialists. Its partners reportedly include FIDELITY INVESTMENTS JAPAN LTD., MERRILL LYNCH ASSET MANAGE-MENT JAPAN CO., LTD. and MORGAN STANLEY ASSET & INVESTMENT TRUST MANAGEMENT CO., LTD. Japan's largest regional bank is looking to these companies not only for investment trust products but also for help in training personnel in the business. Between 40 and 50 of Bank of Yokohama's branches are expected to offer the new investment option.
The wide-ranging but largely undefined relationship established in the spring of 1997 between BANKERS TRUST CORP. and then-reeling NIPPON CREDIT BANK, LTD. continues to take shape (see Japan-U.S. Business Report No. 338, November 1997, p. 14). By yearend, the two reportedly will launch foreign exchange settlement services, particularly for Japanese corporate customers doing business overseas. NCB needs the New York City bank's help in this area because it is in the process of shutting down international operations. That pullback is upsetting foreign currency transactions within Japanese multinationals that the number-three trust bank counts as customers. In Japan, NCB will help Bankers Trust customers buy and sell dollars, yen and other currencies.
VISA INTERNATIONAL INC. has launched an 18-month trial of smart-card payment technology in Tokyo's Shibuya shopping and entertainment area in cooperation with more than 2,000 merchants, 10 Visa credit-card issuers, a like number of banks and 25 technology suppliers. The world's top credit-card company expects 100,000 Visa smart cards to be issued during the program. Participants have the choice of a disposable Visa Cash card, a reloadable Visa Cash card or a multifunction card, which combines a standard credit card and a reloadable Visa Cash card. The Shibuya program will build on the results of a six-month test of Visa chip-based smart cards initiated last October in Kobe.
Automatic teller machines that operate around the clock could be coming to neighborhood convenience stores and gas stations as soon as next spring as a result of an initiative announced by IBM JAPAN LTD. Four convenience store operators and one service station chain have expressed interest in the idea of an ATM network, as have a number of banks and other financial institutions. If the project gets off the ground, it could be a big money-maker for IBM Japan, which would supply the ATMs, the software to run the network and maintenance services.
An exchange rate of ¥141=$1.00 was used in this report.