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No. 353, February 1999

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American Companies in Japan


FINANCIAL SERVICES

GE CAPITAL CORP. is known for its willingness to use acquisitions to build a leading position in different parts of Japan's financial services market. It now has the distinction of paying the highest price ever for a Japanese company — an estimated $7.7 billion for the equipment leasing business of JAPAN LEASING CORP., two of its support services affiliates, plus JAPAN LEASE AUTO CORP. and its maintenance subsidiary (see Japan- U.S. Business Report No. 351, December 1998, pp. 15-16). Bankrupt Japan Leasing, the country's third-largest equipment lessor, has 41 nationwide sales offices and 71,000 customers. Its assets total $17.7 billion, including $7 billion in leasing assets. It will continue to operate under the Japan Leasing name, with GE Capital retaining about 800 of the company's 1,000 or so employees. Japan Lease Auto, which ranks as the second-largest auto leasing company with 140,000 vehicles under lease, has 27 sales branches, four remarketing centers, nearly $1.2 billion in assets and roughly 15,000 customers. Already in the auto leasing business in Japan through a 1996 acquisition, GE Capital is keeping all 500 of Japan Auto Lease's employees. In addition to its leasing operations, the wholly owned GENERAL ELECTRIC CO. subsidiary provides consumer finance services in Japan through three firms and offers life insurance and investment management services through GE CAPITAL EDISON LIFE INSURANCE CO.

The brokerage subsidiary of MERRILL LYNCH & CO., INC. — the other American company whose activities have come to symbolize the new environment in Japan for American and other foreign financial services providers — will increase its sales staff during 1999. Last July, MERRILL LYNCH JAPAN SECURITIES CO., LTD. launched a nationwide network of 33 offices with some 2,000 employees hired from failed YAMAICHI SECURITIES CO., LTD. (see Japan-U.S. Business Report No. 347, August 1998, p. 14). It plans to add as many as 200 people to its current sales force of 1,000 or so in the hope of quickly boosting the relatively small $2.2 billion in assets that it had under management at the end of 1998.

The 1 million-plus AMERICAN EXPRESS CO. cardholders in Japan have a ready-made source of financial services and products. Minneapolis- head-quartered AMERICAN EXPRESS FINANCIAL ADVISORS INC. has opened a Tokyo branch. The new business will distribute its products directly to AmEx cardholders in the first half of 1999 before expanding its mail and telemarketing operations to targeted prospects later in the year. A range of investment products will be offered to customers, although the initial ones will be money market mutual funds.

One of the oldest and biggest American asset management companies is bringing its expertise to Japan. T. ROWE PRICE ASSOCIATES, INC., the investment adviser to the T. Rowe Price family of no-load mutual funds, has an agreement in principle to partner with SUMITOMO BANK, LTD. and DAIWA SECURITIES CO., LTD. when the two Japanese companies merge their money management subsidiaries in April. The Baltimore company will acquire a 10 percent interest in tentatively named DICAM SB ASSET MANAGEMENT CO., LTD. for approximately $16 million. Sumitomo Bank and Daiwa Securities, which will contribute the $29 billion in assets they collectively manage to the joint venture, will each own 44 percent of the new company. The remaining 2 percent will be held by SUMITOMO TRUST & BANKING CO., LTD. Tokyo-headquartered DICAM SB will start off as one of Japan's biggest asset managers, serving both retail and institutional investors. Its non-Japanese equity investments will be managed by an equally owned company that T. Rowe Price will form with its longtime British partner, ROBERT FLEMING HOLDINGS, LTD. The American investment adviser also is expected to develop investment trusts (Japanese-style mutual funds) for DICAM SB and to help it pursue opportunities in the defined contribution pension market in Japan as this business develops.

In a less formal arrangement, ALLIANCE CAPITAL MANAGEMENT L.P. reportedly will help MITSUI MARINE & FIRE INSURANCE CO., LTD. develop investment trust products for the local market. The relationship will start in April when Japan's third-largest nonlife insurer makes MITSUI MARINE INVESTMENT MANAGEMENT CO., LTD., in which it now has a 10 percent stake, a wholly owned subsidiary. The insurer already is marketing investment trust products from Manhattan-based Alliance Capital, which provides mutual funds for individual investors as well as for institutional investment management and other mutual fund companies.

In a twist, a New York City investment advisory and venture capital company founded by Japanese interests is introducing the very American fund-of-funds concept to institutional investors and high-income individuals in Japan. ZERON GROUP has established a Tokyo subsidiary and launched the 9-year-old Ultima Fund, said to be the pioneer fund of funds. ZERON hopes to raise $100 million a year from banks, insurers, pension fund managers and other institutional investors for investment in the Ultima Fund, which it helped to establish.

Some competition is on the horizon. With investment advice from PACIFIC CORPORATE GROUP, a La Jolla, California business that specializes in advising institutional investors and high net worth individuals on private market investment alternatives, MITSUBISHI CORP. plans to establish a private equity fund of funds for local institutional investors. Structured specifically for Japanese investors, the fund of funds will invest in global rather than country-specific assets. Mitsubishi hopes to raise $50 million for the dollar-denominated fund, which will seek a minimum annual return of 20 percent. The trader will market the fund of funds, expected to be the first of several developed with the help of Pacific Corporate Group, through a securities subsidiary of its merchant bank department that will begin operations April 1.

Some new Franklin Templeton internationally oriented mutual funds are available in Japan, initially through SUMITOMO BANK, LTD. and MEIKO SECURITIES CO., LTD., a midsized broker affiliated with Sumitomo Bank. FRANKLIN MUTUAL FUND ADVISERS, INC., a subsidiary of San Mateo, California-based FRANKLIN RESOURCES, INC., is managing the funds, which invest in the securities of American and European companies.

Investment banker BEAR STERNS COS. INC. will advise CLAREMONT CAPITAL HOLDING INC., a venture capital company, on mergers and acquisitions. The New York City business will suggest deals or evaluate targets identified by Claremont Capital as well as handle the takeover negotiations. Bear Sterns also reportedly will help SANYO INVESTMENT TRUST MANAGEMENT CO., LTD., which is part of the Claremont Capital group, to develop and manage investment trusts.

CITIBANK N.A. and SHIZUOKA BANK, LTD. have jointly issued a bank card, marking the first such tie-up between banks in Japan. The regional bank's customers can use the card at Shizuoka Bank cash dispensers and automatic teller machines as well as at any of the ATMs that Citibank has outside Japan. It also can be used as a debit card at stores that honor a Citibank card. With the jointly issued card, the big American bank receives a commission every time it is used at an offshore ATM, while Shizuoka Bank saves the cost of launching an international ATM card on its own. During the rollout, the pair plans to issue between 20,000 and 30,000 cards. This initiative is the latest result of Citibank's strategy of working with regional banks to expand its Japanese presence (see Japan-U.S. Business Report No. 346, July 1998, p. 16).

Continuing to earn its title as the insurance product innovator in Japan, AMERICAN LIFE INSURANCE CO. introduced the first dollar-denominated life insurance policy. The policy has a guaranteed minimum yield of 4 percent.

REINSURANCE GROUP OF AMERICA INC. will help TOKYO MUTUAL LIFE INSURANCE CO. develop new products more quickly. The midsized insurer apparently is eyeing cancer insurance and other so-called third-sector products. The St. Louis company will reinsure — guarantee payment — on the new policies that Tokyo Mutual Life issues. RGA already has a reinsurance arrangement with DAIHYAKU MUTUAL LIFE INSURANCE CO. (see Japan-U.S. Business Report No. 344, May 1998, p. 14).

The changes roiling Japan's financial services market have created consulting opportunities for expert American businesses. For instance, the big accounting company of ERNST & YOUNG LLP has formed a subsidiary to offer its expertise in asset and risk management to financial institutions. E&Y owns 60 percent of ERNST & YOUNG GLOBAL FINANCIAL SERVICE, while its British arm has a 15 percent stake. Japanese accountant SHOWA OTA & CO. put up the remaining 25 percent. The new company is staffed by people from both E&Y and Showa Ota.

For its part, nationalized LONG-TERM CREDIT BANK OF JAPAN, LTD. selected GOLDMAN, SACHS & CO. from a pool of more than 20 interested companies to help it choose a buyer for the bank's viable banking operations. LTCB spokespeople indicated that the investment bank was tapped in large part because of its considerable experience with mergers and acquisitions. Goldman, Sachs also served as a financial adviser to LTCB affiliate JAPAN LEASING CORP. on its sale to GE CAPITAL CORP.

The new consulting opportunities even extend to the government. The Bank of Japan has hired international management consultant MCKINSEY & CO., INC. to advise it on ways to become more efficient and to cut costs, which could involve closing some branch offices and cutting personnel. The central bank expects to receive McKinsey's restructuring recommendations sometime this summer.

HOSPITALITY ASSET SERVICES, L.L.C., a San Diego, California hotel management and consulting firm, is evaluating more than $500 million in nonperforming hotel loans for Japanese bankers and investors. The company is in the process of establishing an office in Tokyo in the hope of winning more such contracts.

Shares of ORACLE CORP. JAPAN are trading on Japan's over-the- counter market after the subsidiary of the big data-base software developer made an initial public offering of 5 million shares, or about 7 percent of the total outstanding. The IPO raised close to $310 million, which the company will use to expand its Japanese operations. One of the few other name American-affiliated firms trading on the OTC market is YAHOO! JAPAN CORP., a joint venture between the Sunnyvale, California Internet search engine provider and SOFTBANK CORP. It went public in October 1997.

An exchange rate of ¥117=$1.00 was used in this report.aaaaaa

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