In a first for U.S. banks, Citicorp and Bankers Trust New York Corp. plan to begin selling retail mutual funds in Japan later this year.
Citicorp said it plans to introduce the funds at the end of this year. Bankers Trust hopes to complete plans soon to market retail funds through three local banks-Sumitomo Bank, Asahi Bank, and Fuji Bank Ltd.
Bankers predicted that Japan's aging population, combined with a growing shortage of corporate pension funds, would increasingly force many Japanese to develop individual retirement programs.
"The pressure to seek better returns is enormous," said Brian Scullin, president of Japan Bankers Trust Co. "The amount of money invested in mutual funds is only a minuscule fraction of Japanese wealth."
"For money managers," he said, "this will be a very large business over the next decade."
If the contemplated arrangements go ahead, said Mr. Scullin, staff training will start in September and sales will begin in December. "We would supply products and technology transfer, they will supply the staff."
He stressed that a key component of the training would be helping staff "understand the difference between guaranteed deposits and mutual funds."
Bankers Trust executives said the objective of the current offensive was to introduce a family of funds that will help the bank build its own identity in Japan. But they also cautioned that building a retail fund business in Japan would be a lot harder than building up institutional fund management.
"The success factors for retail are more complex," said Kunihiko Nakao, managing director and chief investment officer. "You need branching, you need the right timing, and you need distribution."
Mutual funds have gained enormous popularity in the United States in recent years, helping fuel a record rise in the Dow-Jones Index to over 9,000. But they have been slow to take off in Japan and have actually fallen from a combined $338 billion in 1989 to about $77 billion, mainly as a result of a slump in Japan's stock market from about 39,000 on the Dow Jones-Nikkei index in 1989 to about 16,000 recently.
To be sure, the two banks are not the only ones targeting the retail fund market in Japan. Big U.S. fund managers such as Fidelity and Putnam,as well as securities firms like Merrill Lynch, are going after the same market. Fidelity has been investing heavily in building a retail distribution network in Japan, Putnam has struck an alliance with the insurance company Nippon Life, and Merrill Lynch has purchased the retail sales network of the failed Yamaichi Securities .
Analysts believe U.S. banks have a good chance of succeeding since some 60% of between $9 trillion and $10 trillion in private savings is still stashed away in low-yield bank accounts.
"Foreign banks have a great opportunity to attract individual money," said Nozomu Kunishige, a senior analyst with Lehman Brothers Japan Inc. in Tokyo.
"Japanese banks have lagged behind in offering any diversification in investments and they've also lagged behind in building expertise."
But Japanese bankers, who are themselves thinking of expanding into mutual funds, have a few words of caution.
Minoru Eda, deputy president and head of global finance and investment banking at Sanwa Bank Ltd., noted that about one half of 1% of Japan's population of 126 million owns nearly one third of all individual savings. A large portion of the savings are also held by older people, who are risk- averse and unlikely to rush to invest in non-Japanese investments, even if they get a higher return, he added.
He also pointed out that there is still no defined benefit, or 401(k) style, retirement program at Japanese corporations. Such programs have been instrumental in helping fuel retail investments in the stock market in the United States.
"The average Japanese still believes a bank is responsible for any losses they may incur on their investments," Mr. Eda said. Any losses on mutual funds, he and others predicted, will soon send Japanese consumers scurrying back to local banks.
The decision to sell mutual funds in Japan follows a rapid success among U.S. banks in building up institutional assets under management.
According to data compiled by the Japan Trust Bankers Association, Bankers Trust New York Corp. now ranks first in fund management among foreign institutions in Japan with more than $11.5 billion of assets under management as of Jan. 31.
Citicorp ranked third after Credit Suisse with 1.08 trillion yen, Morgan ranked fourth with 1.06 trillion, Chase ranked seventh with 410 billion, and State Street ranked eighth with 408 billion yen.
Assets under management are continuing to climb rapidly at U.S. banks and foreign fund managers.
At Citicorp, for example, they have climbed 40% over the last two years to about $12 billion, while at State Street they have gone from zero to $4 billion in two years. The rise in assets under management now puts Bankers Trust ahead of at least one major Japanese bank-Nippon Trust Bank-which only had 1.2 trillion yen ($9 billion) in assets under management as of March 31.
Bankers noted that institutional and retail fund management are not the only areas where business prospects are looking increasingly rosy. Demand for related services such as securities processing and custody from banks like Chase Manhattan Corp., State Street Corp., and Bank of New York Co. is also increasing.
"Deregulation of asset management has created a vacuum for a complex array of custodial services required to successfully meet the objectives now being set," remarked William W. Hunt, president and chief executive ofState Street Trust and Banking Co., the Japanese asset management unit of State Street.
