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No. 363, December 1999

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American Companies in Japan


FINANCIAL SERVICES

Any number of examples can be marshaled to demonstrate the proposition that American financial services providers believe that there is money to be made in Japan. One of the latest is a rash of investment funds, set up both to bankroll start-ups and to finance mergers and acquisitions against the backdrop of corporate restructuring. The latter possibility has attracted the attention of GE CAPITAL CORP., which already has a big, diversified portfolio of Japanese financial services companies. Along with DAIWA SECURITIES SB CAPITAL MARKETS CO., LTD. and trader SUMITOMO CORP., the world's largest nonbank financial institution is talking about setting up a nearly $2.9 billion M&A fund. About one-third of this amount would be raised from foreign and domestic institutional investors. The balance would be borrowed against the assets of the acquired companies. The prospective Japanese partners would be in charge of scouting out M&A candidates, while GE Capital would supply its extensive M&A expertise. Both sides would tap their sources to raise the money. .....MORGAN STANLEY DEAN WITTER & CO. also is said to be weighing the possibility of moving into Japan's M&A business, backed mainly by American investors. Tentative plans call for the investment bank/brokerage house to spread upward of $95.2 million among two or three good-size companies by the end of March 2001 and in excess of $9.5 million on small firms with favorable growth prospects.

Japanese businesses looking for buyers or seeking advice on restructuring and other financial initiatives have a new source of help. New York City's LAZARD FRERE & CO. and DAIWA SECURITIES SB CAPITAL MARKETS CO., LTD. have teamed up to provide a full array of financial advisory services as well as to handle M&As. The two investment banks also stand ready to assist non-Japanese clients with any Japan-related transactions.

SOFTBANK CORP. has built a reputation as the savviest Japanese investor in Internet- related start-ups, committing funds to dozens of such American companies and partnering with many of them to bring their expertise to Japan. It now has decided that the time soon will be right to make money off of two of its financial services joint ventures. In the second quarter of 2000, MORNINGSTAR JAPAN K.K., a source of independent information on the performance of mutual funds, will go public on Japan's over-the-counter market, followed the next quarter by on-line broker E*TRADE JAPAN K.K.'s initial public offering. DAIWA SECURITIES GROUP INC. will be the lead manager for the Morningstar Japan IPO, while NOMURA SECURITIES CO., LTD. will perform this function for E*TRADE Japan. Morningstar Japan was formed in the summer of 1998 by MORNINGSTAR, INC. (45 percent) and Softbank (55 percent). The Japanese company recently made a sizable investment in the Chicago firm (see Japan-U.S. Business Report No. 359, August 1999, p. 9). E*TRADE Japan, which just launched its financial services Web site (see Japan-U.S. Business Report No. 361, October 1999, p. 21), was set up at the same time. It is 42 percent owned by E*TRADE GROUP, INC. of Menlo Park, California.

Another SOFTBANK CORP.-affiliated on-line financial services company, E+ADVISOR CO., LTD., will soon add ANDERSEN CONSULTING LLP as a minority investor. E+Advisor was established last June by Softbank's consumer finance subsidiary (67 percent), Hartford, Connecticut-based DIRECTADVICE.COM CORP. (22 percent) and a group of other investors, including MICROSOFT CORP., to provide personalized financial planning advice over the Internet (see Japan-U.S. Business Report No. 358, July 1999, p. 25). Andersen Consulting is helping E+Advisor get its business off the ground.

Clients of DLJDIRECT SFG SECURITIES INC.'s on-line brokerage services now can have access to stock analyses prepared by Manhattan's FIRST CALL CORP. for just $1.90 a month. DLJDIRECT INC. and its Japanese partners (see Japan-U.S. Business Report No. 355, April 1999, p. 18) see this information, previously available only to institutional investors in Japan, as a tool to win accounts. The competition for investors interested in trading over the Internet has become intense since the October 1 deregulation of brokerage commissions and the proliferation of on-line brokerage businesses. .....In another move to attract customers, DLJDIRECT SFG SECURITIES INC. will set up a system early in 2000 that will enable its clients to get professional investment advice. They will have a choice of more than 3,000 financial planners. Once an adviser is selected, most of the interaction will occur over the Internet.

The nationalization of LONG-TERM CREDIT BANK OF JAPAN, LTD. indirectly is helping GE CAPITAL CORP. expand its already-considerable consumer finance business in Japan. Through a third-party share allocation, GE Capital will acquire for $13.1 million a 10 percent stake in LIFE CO., LTD. and become the Hiroshima-headquartered firm's top shareholder. One of Japan's six largest consumer credit companies, Life is affiliated with LTCB, an association that has made it hard for the company to raise money. GE Capital also will acquire bonds with equity warrants. If it exercises the right to purchase additional shares through this means, the financial services giant will own 18 percent of Life, which has 2,700 employees and 62 branch offices across the country. Among other aspects of their wide-ranging agreement, GE Capital will establish a $952.4 million credit line for Life. In addition, the American company will take over Life's consumer finance operations. The deal is scheduled to close in March 2000. GE Capital's lineup of Japanese consumer finance companies, assembled over the last five years, includes LAKE CO., LTD., which ranked as the country's fifth-largest direct consumer lender at the time the acquisition was finalized in November 1998.

Credit cards are seen as one as the major growth opportunities in Japan's consumer finance market. GE CAPITAL CORP.'s various consumer finance affiliates already are working to gain a bigger share of this business. So is rival CITIGROUP INC. It could take a huge step toward that goal if it completes the reported negotiations to reacquire DINERS CLUB OF JAPAN INC. from current owners FUJI BANK, LTD. and affiliates (60 percent) and JAPAN TRAVEL BUREAU, INC. (40 percent). CITIBANK N.A. sold the credit-card issuer, which now has about 840,000 members, in 1990 when it ran into financial problems. Industry sources say that rebuying Diners Japan will cost Citigroup about $381 million.

One of CITIGROUP INC.'s other strategies for expanding its business in Japan is to work with regional banks. SHIZUOKA BANK, LTD. seems particularly receptive to this idea, seeing in the marketing of Citigroup financial products a way to save money while offering clients services of interest to them. The two already issue a joint bank card (see Japan-U.S. Business Report No. 353, February 1999, p. 18). Now, they plan to move into the private banking field. Starting sometime in 2000, Citigroup will market its products directly to Shizuoka Bank's wealthier clients as well as through staff of the regional bank who have been trained by the financial services giant. Either way, the Shizuoka prefecture bank will receive a commission on the products sold.

The problems that HEIWA LIFE INSURANCE CO., LTD. has experienced recently in expanding policy revenues have given AETNA INTERNATIONAL INC. the chance to gain an instant nationwide marketing network in Japan's financial services market, particularly the health and life insurance parts of the business, the firm's fortes. Effective immediately, Aetna International will purchase 33 percent of Heiwa Life's outstanding shares for approximately $20 million. Then, sometime in the first quarter of 2000, the Hartford, Connecticut-headquartered company will launch a tender offer for the remaining shares, raising the cost of the prospective transaction to an estimated $60 million. Heiwa Life is one of the smaller players in the world's biggest life insurance market. It ranks 20th in terms of assets and 24th based on premium income. More importantly from Aetna's perspective, though, Heiwa Life has 31 branches and 145 offices across the country, out of which 1,400 sales representatives work. The company also has some 275 agents. GE CAPITAL CORP. used a somewhat similar strategy in 1998 to achieve a national presence in Japan's huge life insurance market.

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In quick order, UNUM JAPAN ACCIDENT INSURANCE CO., LTD. has substantially broadened the marketing channels for its mainstay long-term disability policies (see Japan- U.S. Business Report No. 361, October 1999, p. 21). The products of Portland, Maine- based UNUM CORP. will be available on a NISSHO IWAI CORP. Web site that sells insurance as well as through AOL JAPAN INC. In addition, ORIX CORP., Japan's top leasing company, and midsize brokerage house MATSUI SECURITIES CO., LTD. will include Unum's policies in their portfolios of financial services products.

By mid-2000, PRUDENTIAL INSURANCE CO. OF AMERICA's 1,600 or so agents in Japan will have round-the-clock, real-time access to customer data. That information now is available only on weekdays from 9:00 a.m. to 5:00 p.m. Including terminals for the company's agents, the system will cost about $40 million. Prudential also is planning to open a 24-hour call center, but the timing of that move has not been finalized.

INSWEB JAPAN K.K.'s on-line insurance site is live. For now, though, it just offers a range of interactive tools and information on insurance matters. The actual product rollout will occur in the spring of 2000, when InsWeb Japan begins to market automobile insurance from five Japanese companies, including TOKIO MARINE & FIRE INSURANCE CO., LTD., the biggest writer of these policies, and two foreign companies. Ins-Web Japan plans to introduce term life coverage later in 2000. The firm is a joint venture among INSWEB CORP. of Redwood City, California (25 percent), MARSH & MCLENNAN COS., INC. (20 percent), MICROSOFT CORP. (2 percent) and SOFTBANK FINANCE CORP. (53 percent) (see Japan-U.S. Business Report No. 357, June 1999, p. 22).

The 3.5 million subscribers to FUJITSU, LTD.'s @nifty Internet service already have direct access to insurance products and customer services through @nifty insurance. This service, which has real-time, on-line underwriting, payment and policy-issuance capabilities, is offered in cooperation with the Japanese operation of Philadelphia's ACE INA HOLDINGS, INC. For the time being, the site is providing overseas travel accident and golfer policies, but personal accident insurance and other products are expected to be available to @nifty subscribers shortly. ACE INA Holdings acquired CIGNA CORP.'s international and American property and casualty businesses in July 1999.

The imprimatur of MORGAN STANLEY DEAN WITTER & CO. soon will be placed on Japan's asset-backed securities market. According to tentative plans, the investment bank/brokerage house will securitize $190.5 million worth of nonperforming loans held by banks and other financial institutions for sale to foreign and domestic investors. The collateral underlying these securities will be real estate.

An exchange rate of ¥105=$1.00 was used in this report.aaaaaa

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