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No. 359, August 1999

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American Companies in Japan


FINANCIAL SERVICES

Two more transpacific alliances are convinced that the complete deregulation of brokerage fees, coming October 1, will create a surge of interest in on-line trading. One tie-up involves MICROSOFT CORP. with ITOCHU CORP., DAI-ICHI KANGYO BANK, LTD., ASAHI MUTUAL LIFE INSURANCE CO. and perhaps other companies in JAPAN ONLINE SECURITIES, INC. As early as this fall, the joint venture will offer round-the-clock securities trading via a Web site as well as by phone or fax; other means, such as interactive television, could be used in the future. All the details have not been finalized, but trader Itochu apparently will be the majority owner of Japan Online Securities, which is aiming for 300,000 brokerage accounts in five years. The other grouping pairs WIT CAPITAL GROUP, INC. with MITSUBISHI CORP. and TRANS COSMOS INC. (see Japan-U.S. Business Report No. 359, July 1999, p. 18). The two Japanese companies will put up $8.6 million to capitalize WIT CAPITAL JAPAN, INC. The New York City partner, the first on-line investment banking firm, will own 60 percent of the joint venture and contribute its expertise to the business. Wit Capital Japan, which hopes to be operational early in 2000, will develop electronic brokerage services using the Internet and the Web to offer individual investors the chance to invest in public offerings by Japanese companies and in domestically organized venture capital funds. The new company also will provide a variety of investment banking services to firms developing Internet businesses. Japan Online Securities and Wit Capital Japan will be competing for on-line brokerage customers with companies backed by E*TRADE GROUP, INC., a DONALDSON, LUFKIN & JENRETTE INC. affiliate and CHARLES SCHWAB & CO., INC.

Add sales of investment trusts (Japanese-style mutual funds) to the already long list of financial services that GE CAPITAL CORP. provides in Japan. GE ASSET MANAGEMENT CORP. will be the sponsor of the GE Japan Equity Focus fund, which will invest in anywhere from 20 to 40 Japanese stocks. This company was formed after GE Capital acquired an investment advisory firm as part of its March 1998 agreement to come to the rescue of TOHO MUTUAL LIFE INSURANCE CO. The GE Japan Equity Focus fund will be sold through NIPPON GLOBAL SECURITIES CO., LTD. as well as over the Internet and via other channels.

FIDELITY INVESTMENTS JAPAN LTD. will have a complete package of services ready for companies whenever the government authorizes 401(k) or defined- contribution pension plans. The go-ahead is expected sometime during FY 2000. Fidelity not only will manage the money that employees put into their retirement accounts but also will handle all the paperwork and other administrative tasks for the plan sponsor and educate people about the new retirement vehicle. The world's largest mutual fund manager will face considerable competition in this part of the financial services market, however, since any number of Japanese companies plan to move into the defined-contribution pension plan business.

J.P. MORGAN TRUST BANK LTD. is marketing to corporate pension plan administrators an actively managed international mutual fund that uses stock and bond futures contracts to achieve a target return of nearly 9 percent. The MORGAN GUARANTY TRUST CO. affiliate recommends the fund to companies that normally divide their pension plan assets among a number of money managers to minimize the downside risk.

The first multimanager funds for individual investors are available in Japan. Tacoma, Washington-based FRANK RUSSELL CO. is providing these risk-re-ducing investment products under an agreement earlier this year with BANK OF TOKYO- MITSUBISHI, LTD. (see Japan-U.S. Business Report No. 355, April 1999, p. 17). Forty-eight of the top commercial bank's branches now offer the M-CUBE Russell Investment Program. It should be an option at all 327 of Bank of Tokyo-Mitsubishi's nationwide offices by yearend. Specially trained bank representatives help clients with asset allocations and recommend portfolios of multimanager funds based on their investment objectives and risk tolerance.

Foreign expertise still is much in demand by Japanese financial services providers interested in offering investment trust products to their clients. For example, WELLINGTON MANAGEMENT CO., L.L.P. is working with TOYO TRUST & BANKING CO., LTD. on a diversified international fund. The Boston investment manager currently oversees the trust bank's U.S. stock investments. Similarly, BEAR STERNS ASSET MANAGEMENT INC. helped SAISON INTEX CORP. to create a foreign currency-denominated investment trust fund. The American firm is responsible for investing the fund's assets in foreign bonds with input from the member of the CREDIT SAISON CO., LTD. group.

The first product that CITIGROUP INC. developed for exclusive sale by NIKKO SECURITIES CO., LTD. to individual investors is a dollar-denominated bond whose returns are linked to the trading performance of 20 American Internet stocks. The minimum investment amount is $10,000. The American financial services giant expects to come up with other investment vehicles that Nikko Securities can market to its customers.

Tying up the loose ends in Japan from the acquisition of BANKERS TRUST CORP. by DEUTSCHE BANK AG, the two banks' investment management and trust banking operations are being merged. The combined money management business will go by the name of DEUTSCHE ASSET MANAGEMENT (JAPAN) LTD. At start-up, it will be managing nearly $9.2 billion. The trust banking activities of Bankers Trust and Deutsche Bank, which together have $20 billion in assets under management, will be merged as DEUTSCHE TRUST BANK LTD. As a group, Deutsche Bank affiliates already rank as the top foreign asset manager in Japan. Within five years, though, executives hope that they will be among the five biggest domestic and foreign asset managers in the country with client assets on the order of $83.3 billion. New York City hedge fund CERBERUS PARTNERS, L.P., which has made a name for itself in Japan by buying from banks and failed nonbank financial institutions nonperforming assets with a book value of nearly $14.2 billion in just 15 months, will open an office in Osaka to expand its purchases of real estate-backed bad loans in that part of the country. The company reportedly still has $1.5 billion earmarked for asset acquisitions in Japan.

In what both call a win-win deal, the subsidiary of FORD MOTOR CREDIT CO., the world's biggest provider of automotive financing, bought MAZDA CREDIT CORP. for $66.7 million. The former MAZDA MOTOR CORP. unit's 14 branches generated revenues of $83.3 million in FY 1998. The transaction frees Mazda, which effectively is controlled by Ford through a 33.4 percent ownership stake, to concentrate resources on its core business of building and selling cars and trucks while also trimming the company's net debt. Analysts suggest as well that buyers of Mazda vehicles will be able to get more favorable financing terms because of Ford Motor Credit's market power. For FORD CREDIT JAPAN INC., which provides financing for purchases of Ford vehicles, the acquisition represents a major expansion of its operations. Mazda Credit will continue to operate under that name.

GE CAPITAL FINANCIAL INC., which markets corporate bank cards to multinationals, has teamed with HITACHI CREDIT CORP. to extend its travel card products and services to Japan. Under the alliance, Hitachi Credit will issue yen-denominated MasterCard corporate credit cards to big international companies with local operations, send out Japanese-language statements and provide other in-country cardholder services. Multinationals participating in the program receive from GE Capital Financial consolidated global statements that give them a better idea of how their travel money is spent.

An exchange rate of ¥120=$1.00 was used in this report.aaaaaa

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