International banks attempt to crack Japan home brand bias

Japan remains an inviting, but daunting, market for private banks. It is the world’s second-largest high-net-worth market with 825,000 US dollar millionaire households and $11,900bn (e9,009bn) in high-net-worth assets to play for. However, the land of the rising sun is a relatively dark place for international banks, few of which consider Japan to be core to their growth strategies due to the strong cultural preference for local brands. Unsurprisingly, few international players have offices outside Tokyo, but this appears to be changing. Four international players have recently moved into the local market, each with a slightly different take on how to crack the branding problem in Japan. Of the four, Merrill Lynch is taking the most audacious approach effectively hoovering up leading local names in an alliance strategy with its brand centre stage. The partnership foray began in 2005 when the US bank announced plans for a ¥10bn (e65m) joint venture brokerage entity with Mitsubishi Tokyo Financial Group (MTFG). The subsequent merger of Bank of Tokyo Mitsubishi and UFJ Bank in 2006 left Merrill in the enviable position of being partnered with Japan’s – and the world’s – largest financial institution. Yet the Merrill Lynch brand still reigns supreme, because the alliance is named Merrill Lynch Mitsubishi UJF PB Securities (MLMU). The entity has operations in Tokyo, Osaka, Nagoya and Fukuoka. Extending the multi-brand strategy further, MLMU has just become one of three product partners for the new private banking operations of Nishi-Nippon City Bank. Based in Fukuoka, the largest city on the island of Kyushu, Nishi-Nippon has just launched an asset management service for high-net-worth individuals with ¥50m (e323m). The other partners are Nomura Securities and Mizuho. Suitable allies A few steps behind Merrill is Lombard Odier Darier Hentsch Japan (LODHJ), which has partnered with Bank of the Ryukyus on Okinawa, Japan’s retirement island, and Yamaguchi Bank. In both cases, LODHJ will provide portfolio management services to the private banking operations of the partner banks. LODHJ has also indicated that it is seeking suitable allies to cover the entire country’s wealth market. Both Merrill Lynch and LODHJ have gone down the route of providing their international product expertise to the local market, while acknowledging the power of local banking brands in the Japanese market. By contrast, one European player, SG Private Bank, is daring to go it alone. Single-brand strategies are flavour of the month in Europe, and SG clearly believes it can stretch this to Japan. Last year it opened private banking offices in Osaka, Nagoya and Fukuoka to complement its base in Tokyo. It will be interesting to watch how this is digested by the Japanese market. Certainly, SocGen’s successes in Singapore will give it a lift, but the move is a bold one nonetheless and will undoubtedly serve as a case study for other international players in the region. If SocGen succeeds, it will of course not be the first gaijin private banking brand to penetrate Japan. For example, Citigroup Private Bank (CPB), once the premier international private banking brand in Japan, is also seeking to re-enter the market. The US giant is looking to increase its stake in Nikko Citigroup (currently at 4.9 per cent) to 5.1 per cent in order to directly influence management decisions without taking overall control of the bank. Nikko Citigroup is a joint-venture investment bank established in 1999. Crucially, it has a strong brokerage division targeting Japanese family corporations, which was the core client base of CPB. Citi is also planning to list on the Japanese Stock Exchange by the end of 2007. If, as expected, the Japanese Regulatory Agency (JRA) approves the listing, Citi will probably drive to re-establish the private banking service throughout 2008 with partner institutions rather than seeking to resurrect the tarnished CPB brand. In conclusion, Japanese private banking remains a subject more for market watchers than players, but the signs of activity suggest fortress Japan’s defences may be weakening. Ted Wilson is managing partner at wealth management strategy think-tank, Scorpio Partnership

Wilson: big players acknowledge power of local brands