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No. 350, November 1998

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American Companies in Japan


FINANCIAL SERVICES

The huge volume of low-yielding personal financial assets in Japan and banks' freedom come December 1 to sell investment trusts — Japanese-style mutual funds — over the counter are behind the first investment trust management alliance between an American financial services powerhouse and a big Japanese commercial bank. J.P. MORGAN INVESTMENT MANAGEMENT, INC., the investment management unit of bank holding company J.P. MORGAN & CO., INC., and DAI-ICHI KANGYO BANK, LTD. have agreed in principle to form an equally owned Tokyo-based company to develop and distribute cobranded investment trust products to individual investors and to provide them with investment advice. The new, unnamed company, which hopes to be in business early in 1999, brings together J.P. Morgan Investment Management's global asset management expertise and DKB's extensive distribution network and customer base. The New York City financial firm manages more than $300 billion in assets, primarily for institutional clients, including $11.4 billion for corporate Japan. DKB, which ranks number three among Japan's nine nationwide commercial banks in terms of deposits and has some 12 million individual customers, will market the joint venture's investment trust products through its head office as well as 373 branch offices and telephone banking centers across the country. Its DAI-ICHI KANGYO ASAHI ASSET MANAGEMENT CO., LTD. subsidiary, which manages roughly $16.7 billion in assets, will be the actual business entity that forms the joint venture with J.P. Morgan Investment Management.

With insurance companies also free December 1 to directly sell investment trusts, the asset management subsidiary of NIPPON LIFE INSURANCE CO., the world's largest life insurer, has teamed with PUTNAM INVESTMENTS INC., the number-five U.S. mutual fund manager, to develop, manage and market investment trusts. NISSAY ASSET MANAGEMENT CORP. and Putnam will jointly design the products, initially expected to consist of yen-denominated foreign securities investment trusts. Nippon Life will market these funds along with others developed exclusively by Nissay Asset Management or by other mutual fund managers. Putnam will manage the money in the codeveloped products. Sometime in 1999, probably April, the Boston company will become a minority investor in Nissay Asset Management when that firm issues new stock to boost its capital. Putnam and Nippon Life are no strangers. In June 1997, they announced a deal under which the American firm would manage some of the corporate pension funds entrusted to Nippon Life and otherwise help it to become a more effective asset manager.

STATE STREET GLOBAL ADVISORS has established a jointly licensed, wholly owned investment trust management and investment advisory company in Tokyo to serve both institutional and individual clients. The investment management arm of STATE STREET CORP., which is perhaps best known for the custodial services it provides financial institutions, already is active in Japan's pension fund market through the local subsidiary of STATE STREET BANK & TRUST CO. SSgA's new operation will enable it to deliver expanded asset management services.

A third Boston company also hopes to capitalize on the promise of Japan's investment trust market. MFS INVESTMENT MANAGEMENT INC., which bills itself as the inventor of the mutual fund and manages more than $92 billion in assets for both individual and institutional mutual fund and annuity investors worldwide, formed a Tokyo subsidiary to sell investment trusts and offer investment advice. The company expects to use a variety of distribution channels to market its products, including brokerage houses, banks and insurers. TOKAI BANK, LTD., one of Japan's nationwide commercial banks, already has indicated that it will work with MFS Investment Management to develop products for its customers.

Sometime in the first quarter of 1999, the Chase Asset Management division of CHASE MANHATTAN CORP. will launch 10 investment trusts in Japan designed for retail customers. These products will be distributed through brokers, banks and insurers. The company could use the branches of its local Chase Trust Bank to sell the funds, but this operation primarily serves corporate clients. It manages $3 billion in pension assets for them.

With competition growing to handle individual investors' savings, AMERICAN INTERNATIONAL GROUP, INC. and MITSUBISHI TRUST & BANKING CORP. decided to increase the capital of their joint asset-management company to better position it to win new business. The two formed AIMIC INVESTMENT MANAGEMENT LTD. in February 1997 to sell investment trusts as well as to manage corporate pension funds. At the time, insurance giant AIG put up 70 percent of the company's equity. When AIMIC Investment's capital is raised, Mitsubishi Trust directly and indirectly will up its stake to 50 percent.

Mergers and acquisitions adviser BROADVIEW INTERNATIONAL, LLC opened an office in Tokyo. The New York City investment bank, which specializes in the information technology, communications and media industries, sees greater willingness among companies in Japan to employ M&As as a strategy for growth, if not survival. Broadview's new on-site operation will be backstopped by an advisory board that includes among its members a number of Japanese business leaders and academicians.

Add securities and foreign exchange trading to SOFTBANK CORP.'s increasingly diverse businesses. Its local joint venture with on-line broker E*TRADE GROUP, INC. of Palo Alto, California (see Japan-U.S. Business Report No. 346, July 1998, p. 20) is acquiring OSAWA SECURITIES CO., LTD., a money-losing small Tokyo brokerage house that has offices in the capital and in neighboring Saitama prefecture. With the purchase comes Osawa Securities' brokerage license and membership on the Tokyo Stock Exchange. The broker's existing clients will continue to be served, but E*TRADE JAPAN K.K. plans mainly to use the acquisition to start low-cost on-line trading of stocks, particularly over-the-counter issues but also shares listed on the TSE. The soon-to-be-renamed Osawa Securities also will buy and sell bonds and offer investment trusts. Softbank owns 58 percent of ETrade Japan as well as 27.2 percent of ETrade itself (see Japan-U.S. Business Report No. 347, August 1998, p. 6).

SONNET FINANCIAL, INC. is SOFTBANK CORP.'s means for getting into the foreign exchange business. The two have formed FOREXBANK CORP., an Internet-based foreign exchange services company that will serve corporate and individual customers in Japan. San Mateo, California-headquartered Sonnet Financial put up 40 percent of the capital for the joint venture, which will use its American partner's FXWeb Internet platform for trading. FXWeb gives clients wholesale or "interbank" foreign exchange rates on spot and forward contracts for a low fixed fee per transaction. Sonnet Financial's zero-spread pricing guarantee sets its apart from banks and other foreign exchange traders, which make money from the difference between buy and sell quotes.

Half of the risks associated with disability policies that Portland, Maine's UNUM CORP. sells through CHIYODA MUTUAL LIFE INSURANCE CO. agents (see Japan- U.S. Business Report No. 344, May 1998, p. 14) are being reinsured by the big life insurer. In turn, the two companies equally split the premium income. Never before in Japan has a life insurer reinsured nonlife coverage.

For the second time, CITIBANK N.A. has arranged a syndicated line of credit for a major Japanese corporation. SUMITOMO CORP. will have access to $600 million in short-term financing should the big trading company have trouble raising money from its traditional Japanese bankers. Seven mainly European banks are members of the loan syndicate along with Citibank. Earlier this year, seven American and European banks joined Citibank in setting up a revolving credit facility for NEC CORP. (see Japan-U.S. Business Report No. 343, April 1998, p. 14).

An exchange rate of ¥121=$1.00 was used in this report.
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