Leveraging its risk management and systems expertise, First Chicago NBD is extending its derivatives business in Asia by forming a joint venture with Tokio Marine & Fire Insurance Co. Ltd., effectively growing its derivatives business by tapping the Japanese insurer's customer base.
The venture enables Tokio Marine to immediately expand its product offering into securities- which was off limits until recent deregulation- without making the necessary investments to build systems to support an independent derivatives business. "The derivatives business is a relatively expensive business to get into," says Barry Sabloff, svp and head of global risk management for First Chicago, "because you need the pricing models, the back-office systems. All of that systems and technology (investment), we bring to the table, and we will supply in the joint venture."
Considering that insurers have been permitted to get into securities businesses for only about a year, Tokio Marine has made this deal in a "big bang" approach to get into the Tokyo derivatives market, says Deborah Williams, research director of Meridien Research. And since Japanese firms are infamous for their lack of automation (with the notable exceptions of accounting and processing systems), partnering with an American bank that is less vulnerable to the market slides of the region and brings tried systems and experienced traders to the table is an appealing strategy. "As highlighted by recent gyrations in the market, there will be greater focus on managing risk in that part of the world," says Sabloff. "We expect Asian companies and Japanese customers of Tokio Marine will have big demand for these products. We think that we can grow our business better with a partner that can provide us with indigenous companies." FB