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No. 360, September 1999

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American Companies in Japan


FINANCIAL SERVICES

CITIGROUP INC. and NIKKO SECURITIES CO., LTD. are offering consumers the convenience of one-stop shopping for financial services on an experimental basis. CITIBANK N.A. has taken over one floor of Nikko Securities' Gotanda office in the Shinagawa area of Tokyo, offering investment trusts (Japanese-style mutual funds) and money-management advice as well as regular banking services. The big brokerage house sells its own financial products on two other floors. This is the first tie- up between Citigroup and Nikko Securities on the retail side of the financial services business since the holding company became the top investor in the securities firm and the Japanese broker's investment banking and institutional trading operations were spun off into a joint venture with Citigroup's SALOMON SMITH BARNEY INC. (see Japan-U.S. Business Report No. 354, March 1999, p. 19).

Detailing its retail strategy for Japan, major investment bank/brokerage house MORGAN STANLEY DEAN WITTER & CO. said that it would use four channels to distribute financial products and services to individual investors. Before the start of 2000, the company will open a branch office, presumably in the Tokyo area, to offer clients investment trusts and other products. At this time, executives indicated, Morgan Stanley is not planning to acquire an existing retail brokerage network like rival MERRILL LYNCH & CO., INC. did, although that option always is a possibility, the same insiders said. A tie-up with SANWA BANK, LTD. will provide a second distribution channel. Under this arrangement, the first Morgan Stanley has formed with a Japanese financial institution, the nationwide commercial bank will sell a number of the New York City firm's mutual funds at its branches starting this fall. The same products also might be available through four securities firms affiliated with Sanwa Bank. At several of the bank's branches, personnel from Morgan Stanley and Sanwa Bank will collaborate to get a better feel for exactly what types of money-management products are of greatest interest to individual Japanese investors and to try out various sales methods. The financial services provider also envisions similar deals with other Japanese financial institutions. These agreements will provide a third retail sales avenue. Finally, Morgan Stanley's on-line brokerage unit, DISCOVER BROKER-AGE DIRECT, INC., will offer Internet trading. The specifics of this move still need to be worked out, but the service probably will not be launched until the latter part of 2000, even though Japan will completely deregulate brokerage commissions October 1. Moreover, according to current thinking, Morgan Stanley will not steeply discount its charges to attract customers to its on-line trading activities. Instead, it plans to depend on the quality and the breadth of its services to win business, including the ability of its customers to invest directly in all the world's major stock markets.

Any number of companies, foreign and domestic, are betting that, in time, on-line investing will become just as popular in Japan as it is in the United States. However, some American financial services providers are content for now to take a minority position in one of the Internet trading start-ups rather than spearhead the projected revolution in Japanese retail investing. For instance, J.P. MORGAN & CO., INC. acquired a small stake in MONEX INC., an on-line brokerage formed last spring by SONY CORP. and a former investment banker. Through this venture, which expects to start operations in October, the New York City bank holding company hopes to find a market for its financial advisory services. J.P. Morgan already has extensive operations in Japan, including a tie-up with DAI-ICHI KANGYO BANK, LTD. in the asset-management field (see Japan-U.S. Business Report No. 355, April 1999, p. 18).

Within five years, AMERICAN EXPRESS ASSET MANAGEMENT INTERNATIONAL (JAPAN) LTD. wants to be managing $1 billion of assets for Japanese institutional investors. A primary means to this end is to offer financial products, particularly stock mutual funds, to the investment managers of corporate pension plans. Until now, AmEx Asset Management's main focus has been selling investment products to the more than 1.1 million AMERICAN EXPRESS CO. cardholders in Japan.

Setting the stage for its biggest move to date in Japan, the Tokyo District Court tentatively cleared the sale of bankrupt NIPPON ASSET MANAGEMENT INC.'s operations to GMAC COMMERCIAL MORTGAGE CORP. The Tokyo company was established earlier this year after JAPAN LEASING CORP., formerly part of the now- nationalized LONG-TERM CREDIT BANK OF JAPAN, LTD., sold its equipment leasing business to GE CAPITAL CORP. (see Japan-U.S. Business Report No. 353, February 1999, pp. 16-17). The 150-employee Nippon Asset Management took over Japan Leasing's real estate and other assets. They have a book value of about $8.8 billion. Once the court approves Nippon Asset Management's restructuring plan, which must be submitted by the end of November, GMACCM will be free to take over its businesses and employees. The second-largest nonbank financial concern in the United States has been one of the biggest buyers and securitizers of property-backed nonperforming loans in Japan.

Cleaning up another part of the mess caused by the bankruptcy of LONG-TERM CREDIT BANK OF JAPAN, LTD., the company trying to find a buyer for the bank, GOLDMAN, SACHS & CO., purchased part of the real estate-backed loan portfolio of failed NIPPON LANDIC CO., LTD., a LTCB nonbank affiliate. The loans bought by Goldman, Sachs have an estimated book value of $1.2 billion. They are expected to be securitized. .....Meanwhile, GOLDMAN, SACHS & CO. now is one of the 19 companies, eight of them foreign-affiliated, that the Ministry of Justice has licensed to serve as loan servicers. These companies are authorized to collect payments on property-backed loans for the lenders or for the buyers of nonperforming loan portfolios. They also can manage the underlying collateral. That right extends to selling it to third parties. The new, 12-person Goldman, Sachs loan servicing unit is handling the loans and the related properties acquired by its parent. GMAC COMMERCIAL MORTGAGE CORP. and CERBERUS PARTNERS, L.P. are among the other American investors that have their own loan-servicing units (see Japan-U.S. Business Report No. 356, May 1999, p. 19).

A new source of financing and managerial help will be available this fall for Internet- related start-ups. NETYEAR GROUP, INC. of Redwood City, California has opened a wholly owned subsidiary in Tokyo to scout out promising e-businesses to bankroll and get the ones that pass its test up and running. The money will come from Netyear Knowledge Capital Partners, which hopes to raise as much as some $17.7 million. Netyear expects to invest in five Internet ventures within the first two months and then 10 to 20 companies a year. It will invest as much as $442,500 in any one company, subject to a limit of half of the start-up's financing. Netyear was established by the holding company for Japan-based systems integrator INFORMATION SERVICES INTERNATIONAL-DENTSU, LTD., but it became independent in October 1998 through a management buyout.

In a decision aimed at expanding its core operation, AMERICAN EXPRESS CO. will unveil this fall a credit card designed specifically for small businesses. Available in the United States but now nowhere else in the world, the card will have a preapproved credit line of $4,400 and will enable holders to receive discounts on a variety of goods and services, including office supplies, hotels, restaurants and car rentals. AmEx's subsidiary will market the card to small businesses through direct mailings.

An exchange rate of ¥113=$1.00 was used in this report.aaaaaa

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