Japan has 1.4 million people with more than $1 million in liquid assets—ranking the country second behind only the U.S. Alas, the island nation is known for being a society of savers—a people who prefer to keep cash stowed away in low-interest-bearing savings accounts. Merrill Lynch has teamed with Japan’s Mitsubishi UFJ Financial Group to change all that. Yesterday, the two behemoths launched a private banking unit armed with 150 financial advisors.
The partnership, called Mitsubishi UFJ Merrill Lynch PB Securities (MUML-PB), will initially target Mitsubishi UFJ’s existing customers, who have at least 100 million yen in assets (roughly $900,000). For its part, Merrill has contributed its Japanese unit’s private client business, which consists of 8,000 accounts and more than 1 trillion yen in assets. Merrill has a 50 percent interest in the venture, while Bank of Tokyo-Mitsubishi and Mitsubishi Securities have 40 percent and 10 percent ownership, respectively.
The Japanese will bring its banking resources and knowledge of the local market, and Merrill will bring its financial products and wealth-management expertise to form a formidable partnership. In hooking up with Mitsubishi, Merrill hopes to convince the Japanese to switch from low-interest savings accounts to more sophisticated investment vehicles. But winning new clients won’t be easy for Merrill, given Japan’s cultural preference for cash—that and having endured a painful 15-year bear market.
But, company officials say that sentiment is shifting in the land of the rising sun and that there is plenty of cause for optimism. “The Japanese banking system has been restructured, the economy is recovering—and with an aging population, more Japanese will be living longer, and they will want to live well longer,” says Merrill spokesperson Jennifer Grigas. “We believe that more people will move their money from very low-interest-bearing deposits to investments.”
Although the firm has been doing business in Japan on some level since 1960, the move marks Merrill’s first major push into Japan, the world’s second-largest economy after the U.S., since the firm closed its retail brokerage business in 2001 amid heavy losses. “[The] mass retail approach did not work,” Grigas says. But this time Merrill believes it is doing it right: Targeting a niche segment of the market and partnering with a Japanese firm with brand recognition and local knowledge of how business is done. The joint venture also enables Merrill to use Mitsubishi’s existing infrastructure of more than 600 offices and allows access to its clients, Grigas says.
The opportunity to redeploy operations in Japan presented itself when, in September 2004, Japanese securities regulators ordered Citigroup to close its private bank after unearthing improper trading practices and ineffective anti-money laundering measures. Merrill joins global financial-services firms such as UBS and Standard Chartered of London in filling the void left by Citigroup.
“By fusing the respective strengths of Merrill Lynch and MUFG, we aim to offer better services, greater scalability and stronger marketing power than ever before,” said Junji Okabayashi, chief executive officer of MUML-PB, in a prepared statement. “We expect our new company to be a formidable offering in the Japanese market.”
The new company, headquartered along with Merrill Lynch's existing Japanese institutional and asset management businesses in Tokyo, aims to become one of the top five global financial institutions in terms of market value by fiscal 2008, the company said.