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No. 351, December 1998

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American Companies in Japan


FINANCIAL SERVICES

The sixth-biggest consumer finance company in Japan -- the AIC CORP. subsidiary of Dallas-head-quartered ASSOCIATES FIRST CAPITAL CORP. -- just got bigger. At an estimated cost of $124 million, it acquired a midsized Shizuoka prefecture competitor from NIPPON INVESTMENT & FINANCE CO., LTD., a venture capital company affiliated with DAIWA SECURITIES CO., LTD., and other shareholders. NISSEN CO., LTD. had 35 offices and an outstanding loan balance of $198.3 million at the end of March 1998, which ranked it 27th in the domestic consumer finance industry. AIC, in business since 1979, expanded its presence considerably earlier this year when it bought what was then the number nine in the industry, DIC FINANCE CO., LTD., for more than $600 million (see Japan- U.S. Business Report No. 343, April 1998, pp. 12-13).

Probably not by coincidence, this deal closed just days before GE CAPITAL CORP. completed the acquisition of the consumer loan business of LAKE CO., LTD. (see Japan-U.S. Business Report No. 347, August 1998, p. 14). Japan's fifth-largest direct consumer lender brings to the American giant's local consumer financial services business in excess of 1.4 million customers, 597 branch offices, close to $4.5 billion in loan receivables and 2,800 employees. Corporate loans, real estate and other Lake operations not acquired by GE Capital were retained by a new company named L CO., LTD.

This was not the first time that GE CAPITAL CORP. used an acquisition to gain a major presence in a Japanese financial services market. Earlier this year, it employed the same strategy to move into the insurance business (see Japan- U.S. Business Report No. 342, March 1998, p. 15). Now, the world's largest nonbank financial services provider, which has been exploring opportunities to enter Japan's huge equipment leasing market, is in talks to take over JAPAN LEASING CORP. The nation's third-largest equipment leasing company, a LONG- TERM CREDIT BANK OF JAPAN, LTD. unit, filed for bankruptcy at the end of September with debts of $19.7 billion. Any deal also would include JAPAN LEASE AUTO CORP., Japan Leasing's automotive leasing subsidiary. The news that GE Capital was negotiating to buy Japan Lease effectively ended the company's discussions about purchasing a majority stake in RYOSHIN LEASING CORP., a much smaller equipment lessor than Japan Leasing (see Japan-U.S. Business Report No. 347, August 1998, p. 14).

Add DONALDSON, LUFKIN & JENRETTE INC. to the list of American financial services providers that have found the lure of Japan's huge pool of personal savings irresistible. However, it will use a different means than its New York City competitors to attract some of this money. Through its DLJDIRECT INC. on- line brokerage subsidiary, the investment bank will form a joint venture with SUMITOMO BANK, LTD. and INTERNET INITIATIVE JAPAN INC. to provide on-line financial services to Japanese investors. Initially, the DLJdirect unit will offer Japanese equities, investment trusts (Japan-style mutual funds) and money market funds. In time, the on-line service will give Japanese investors access to U.S. securities, including investment products offered by Donaldson, Lufkin & Jenrette and its affiliates. The DLJdirect subsidiary expects to begin operations in the second quarter of 1999, by which time brokerage commissions will be completely liberalized. The partners did not disclose how the capital for the new company would be divided.

AMERICAN EXPRESS CO. has revised the Japan business strategy of its AMERICAN EXPRESS ASSET MANAGEMENT INTERNATIONAL (JAPAN) LTD. unit. Rather than just offering investment advice, the original plan (see Japan-U.S. Business Report No. 348, September 1998, p. 12), the company will build a retail brokerage network to sell the investment products of American Express Financial Advisors. AmEx Asset Management has applied to the Ministry of Finance for a brokerage license and hopes to start sales sometime in 1999. It initially will try to attract the brokerage business of the more than 1.1 million AmEx cardholders in Japan.

LIBERTY FINANCIAL COS., which manages more than $57.5 billion of assets on behalf of 1.7 million investors worldwide, has formed a subsidiary to market mutual funds and other investment products from its various affiliates. The first offering will be a new class of shares in the Colonial Strategic Income Fund, a U.S. multisector bond fund. Other products from THE COLONIAL GROUP, INC., STEIN ROE & FARNHAM INC. and NEWPORT PACIFIC MANAGEMENT INC. are expected to be introduced in the future.

For months, American mutual fund managers had been preparing for December 1, the day that banks could start selling their products directly to individuals. FIDELITY INVESTMENTS JAPAN LTD. was especially well-positioned to tap into this potentially big customer base. By then, it had lined up 23 midsized and large banks around the country to handle its yen-denominated investment trusts. Fidelity mutual funds also are sold by brokerage houses as well as by the company via phone and mail.

CITIBANK N.A.'s subsidiary also was ready when the ban was lifted on direct sales of investment trusts by banks. The bank started off with nine of its own products, all relatively low-risk bond and money market funds denominated in yen, dollars or the new euro. In addition to sales at its branches, Citibank is marketing the funds through its telephone banking system.

Like a number of other major Japanese banks, SUMITOMO TRUST & BANKING CO., LTD. wants to sell one or more of its own investment trusts. It has turned to CHASE MANHATTAN CORP. for help in developing the initial product. The dollar- denominated fund will be managed by the New York City bank's Chase Asset Management division (see Japan-U.S. Business Report No. 350, November 1998, p. 17) and will invest mainly in U.S. Treasury bills and other low-risk debt instruments. The minimum purchase will be $3,000.

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