Nippon Credit Bank and Bankers Trust New York Corp. announced April 10 their intention to forge a business tieup that would transfer NCB’s overseas business to the U.S. bank and initiate a cross-shareholding arrangement between the two firms. The contract for the tieup, expected to be formally signed later this month, will be the first such alliance between a Japanese and a U.S. bank.
The two banks said the move was an effort to meet the challenges posed by the upcoming “Big Bang” financial deregulation in Japan.
Under the terms of the agreement, Bankers Trust would be entrusted with NCB’s overseas business, and the two banks would jointly undertake such transactions as securitization of real estate and other assets. The brokering and asset-managing technology of the Bankers Trust Group would be used to jointly develop financial products, the banks said in a joint statement. The two banks also said they were considering mutual capital participation once NCB’s current efforts to set its books in order are completed.
Earlier this month, NCB, whose creditworthiness was ebbing due to rumors that it was in dire straits, unveiled a comprehensive restructuring package that included the closure of all its overseas offices and the sale of its Tokyo head office and other properties.
The long-term credit bank also liquidated its three affiliated nonbanks and said it would write off massive amounts of nonperforming loans for the business year that ended in March. These efforts will drive down its capital-to-asset ratio, and NCB is currently asking other banks and insurance firms to help increase its capital by 290.7 billion yen.
But some observers have been questioning whether NCB can survive as an investment bank without overseas offices.
Through the tieup, NCB may be able to use Bankers Trust’s overseas network to continue such operations as lending to firms’ overseas subsidiaries, and brokerage of mergers and acquisitions.
Vice Finance Minister Tadashi Ogawa welcomed the agreement, saying he hopes it will make a major contribution to NCB’s restructuring efforts. The move could also inspire other financial institutions preparing for the Big Bang, he added. “I hope this tieup will help show (other financial institutions called on to help NCB) the seriousness with which NCB is trying to fix its operations,” Ogawa said.
The ministry’s top bureaucrat also said the Finance Ministry had checked the figures in NCB’s restructuring plan and deemed the plan sufficient to allow the bank to remain in business. On the issue of foreign shareholding in a Japanese financial institution, Ogawa said he will not rule out the possibility of more varied management structures amid economic globalization. “But in general, I do not see foreign capital participation occurring simply because of a more global market, since economic activity in any country is basically rooted in that nation’s economy,” he said.
James Fiorillo, senior analyst at ING Baring Securities Japan Ltd., said details on the scope and scale of the tieup were still unclear, but pointed out that the U.S. bank has previous experience helping other financial institutions in such areas as asset securitization. The tieup could also be profitable for Bankers Trust because it might be able to purchase NCB’s assets at preferential rates and pick up some of NCB’s overseas business, he observed.
He added that there would definitely be more agreements of this nature in the future as Japanese banks retreat from overseas markets to stay afloat amid the wave of financial liberalization and try to meet customer needs. “With deregulation comes rapid consolidation, and banks are going to disappear through mergers,” he said.
Fiorillo also said he saw vast changes in the way of thinking of bankers and regulatory authorities, pointing out that they are now becoming more receptive of the idea of foreign capital participation in Japan’s financial institutions. “They understand clearly that Japanese banks are the odd-man-out (in the global financial system,) and that (foreign participation) could potentially increase with tieups,” he said.