Bank of Tokyo Battles U.S. Rivals In the Global Custody Business
In the lucrative realm of global custody services, the Bank of Tokyo is a waking giant, and U.S. banks are taking note.
Although Japanese banks dwarf their biggest American counterparts in overall size and have already made some inroads into the United States, they have until recently been minor actors in the nation-hopping global custody business.
A fast-growing segment of trust services, global custody is now dominated by American and European banks that serve investors interested in buying stocks and bonds in markets ranging from Hong Kong to Zurich.
A Head Start in America
Now Bank of Tokyo is joining the fray, and is in the forefront of Japanese banks with its aggressive pursuit of trust clients outside Japan.
Bank of Tokyo, with $228 billion in assets, already has a sizable foothold in the United States. About $70 billion of the bank's worldwide custody business is managed by Bank of Tokyo Trust Co., based in New York. These transactions are processed in Jersey City by a subsidiary called Bank of Tokyo Information Services Inc.
It is the first Japanese bank to install an advanced, multi-million-dollar system in its head office for monitoring international holdings - a system that U.S. banks consider essential to be a major player. Several customers now are testing the system, called Giant, in Japan, and it will soon be offered to its largest trust customers.
Rivals on the Alert
The new system "throws down the gauntlet - now they're saying: |We're in the global arena,'" said Mark C. Aprahamian, a vice president at Citicorp.
"True global custody product is one in which all the securities information is on one system," said Rick McArthur, who heads operations at Sumitomo Trust Co., New York, a unit of Osaka-based Sumitomo Bank. This subsidiary also targets U.S. customers, and has signed several U.S. clients, Mr. McArthur said.
Like Citicorp, the Tokyo-based bank has also built an extensive network of branch offices to sell its services.
"Other banks use correspondent banks, and sometimes there may be some deficiencies," said Yoji Izumi, president of the information services unit in Jersey City. "We believe our quality will be higher."
Traditions of Caution
Despite their massive size, Japanese banks traditionally have not ventured far beyond their provincial franchise, monitoring the U.S. government securities holdings of Japanese pension funds and other clients. No Japanese bank has made significant inroads into the core franchise of American trust banks - U.S.-based pension and mutual funds.
"We're not seeing Japanese banks across the board competing for contracts," said Marshall Carter, president and chief operating officer of State Street Boston Corp., who recently headed Chase Manhattan Corp.'s global custody business. "But they are very powerful banks, and if they decide this is a profitable business to be in, they will enter."
Chase is the ~argest U.S. global custodian with about $120 billion assets. Citicorp is second, with $70 billion under custody.
"The Japanese banks' role as global custodians has been a little bit laid back until now," said Thomas Abraham, a consultant with Andersen Consulting Co. "They've been positioning themselves - those that can afford to amass a network have been doing so."
Worries on the Home Front
With some $200 billion assets under custody, Bank of Tokyo handles about 30% of Japanese investments in U.S. government securities. The bank's strategy is to expand its business in the United States, Europe, and Asia by selling services through an on-line branch network.
Giant enables the bank to monitor and issue reports to clients in multiple currencies. The reports take account of the different conventions for clearing and settling currencies in each country where assets are held, and the different regulations governing pension and mutual funds in different countries.
The Giant system was developed in-house. It uses the DB2 relational database from International Business Machines Corp., running on an IBM mainframe.
Bank of Tokyo is aggressively marketing custodian services to European banks. "Bank of Tokyo is the only Japanese bank aggressive in sales and marketing [overseas]; other banks get warm and then cool down," said Mr. Aprahamian.
Another important part of the strategy is to retain control over the quality of service through an extensive wholesale branch network covering 47 countries.
Many other top U.S. trust banks, such as State Street and Northern Trust Co., use correspondent relationships with foreign banks to give them their global reach.
By keeping the network in-house, "it's easy for them to guarantee consistency and keep control over operations," Mr. Abraham said.
The New York-based Bank of Tokyo Trust Co. ranks fourth in value of total trust assets, after Bankers Trust New York Corp., Wells Fargo & Co., and J.P. Morgan & Co. The operations arm of the bank is responsible for processing all transactions for U.S. branches of Bank of Tokyo. Within two years, several new branches will be established, and the unit is expected to support a total of 10 branches in the United States.
The information services division uses some purchased software and has a system developed in-house that is linked on-line to computers in Tokyo. "In addition to the usual custody service and securities lending service, Bank of Tokyo offers a unique multicurrency portfolio-accounting service to global investors using an in-house developed software package," Mr. Izumi said.
Mr. Izumi said that the New Jersey operation may eventually use the Giant system as well.
PHOTO : A Rising Star Sources: Bank of Tokyo, Citicorp
PHOTO : GLOBAL ASPIRATIONS: Yoji Izumi of Bank of Tokyo Information Services Inc., spearheads U.S. effort.