U.S., European Trust Banks Face Dilemma in Japan
Fierce Japanese competition means a bleak future for the nine U.S. and European trust banks in Japan, according to bankers and analysts.
But because the banks are important symbols of financial liberalism, the Ministry of Finance is reluctant to let them close, foreign bankers said.
Profits of the nine - wholly owned units of U.S., British, and Swiss banks - tumbled 87% last year, the bankers said.
The banks were set up in 1985 and 1986 after Japan, under U.S. pressure, agreed to liberalize its financial and pension-fund markets.
Trust banks specialize in managing pension and trust funds. Unlike many nontrust foreign branches in Japan, foreign trusts are defined as subsidiaries and have the same status as their Japanese counterparts banks under commercial law.
Foreign banking sources said pretax profits of the nine banks fell to $5.2 million in fiscal 1990-91, which ended March 31. Three suffered losses; a year earlier, only two did so. Six has lower profits in 1990-91, and only one showed a rise. Brokerage profits fell 35.6%, to $4.3 million.
Hanover Plans a Sale
Manufacturers Hanover Trust Co. said in mid-August that it was negotiating to sell its Japanese trust unit to State Street Boston Corp. The pullout would be based on the parent's needs in the United States as the Japanese unit has been modestly profitable.
Even if profits deteriorated, the foreign banks would have a hard time withdrawing, a banking analyst said. Given the background of the trust banks' creation, withdrawal by their parents might create political friction between Japan and the United States.