INTERNATIONAL STRATEGIES OF JAPANESE BANKS International Strategies of Japanese Banks The European Perspective J. Thorsten Diiser Macmillan Education ISBN 978-1-349-20978-1 ISBN 978-1-349-20976-7 (eBook) DOI10.1007/978-1-349-20976-7 © J. Thorsten Doser, 1990 Softcover reprint of the hardcover 1st edition 1990978-0-333-52207-3 All rights reserved. For information, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010 First published in the United States of America in 1991 ISBN 978-0-312-05315-4 Library of Congress Cataloging-in-Publication Data Doser, J. Thorsten, 1961- International strategies of Japanese banks: the European perspective/J. Thorsten Doser. p. cm. Includes bibliographical references and index. ISBN 978-0-312-05315-4 1. Banks and banking, Japanese. 2. Banks and banking, Japanese -European Economic Community countries. I. Title. HG3324;D87 1991 332.1'5'0952-dc20 90-42657 CIP Contents List of Tables Vll List of Figures ix Acknowledgements xi List of Abbreviations xii 1 Framework of the Study 1 1.1 Introduction 1 1.2 Outline of the Japanese Financial System 4 1.3 Institutional Focus 5 1.4 The Focus on Western Europe 11 1.5 Strategy Evaluation 13 1.6 Methodology for the Study 15 2 The Changing Strategic Environment of Japanese Banks, 1971-89 17 2.1 Domestic Sphere 17 2.1.1 Regulatory environment 17 2.1.2 The customer environment 35 2.1.3 The changing domestic sphere - strategy considerations 50 2.2 Internationalization of the Yen 51 2.2.1 Revision of the FEFI'CL and abolition of the real demand rule 53 2.2.2 Euroyen liberalization and the Japan offshore market 54 2.3 International Sphere 57 2.3.1 Japanese trade patterns 58 2.3.2 Japanese foreign investment 60 2.3.3 Eurocurrency markets 66 2.3.4 A changing international sphere- strategy considerations 68 vi Contents 3 Internationalization of Japanese Banks 73 3.1 Strategic Driving Forces - Outline 73 3.1.1 Conflicts of scope with other financial institutions 78 3.1.2 Changing corporate relationships 88 3.2 Expansion of International Expansions- Overview 94 3.2.1 City Banks 102 3.2.2 Long-term Credit Banks 106 3.2.3 Trust Banks 107 3.3 Focus: Japanese Banks in Western Europe 109 3.3.1 Forms of representation 110 3.3.2 Geographical spread 111 3.3.3 Strategic attractions of Western Europe 115 3.3.4 Strategies applied- case study no. 1: the United Kingdom 117 3.3.5 Strategies applied- case study no. 2: Germany 122 3.4 Japanese Banks in Western Europe- Strategy Evaluation 128 3.4.1 Strategy perception by Japanese banks 129 3.4.2 Determinants of Japanese banks' multinationalization process 133 3.4.3 Keys to the Japanese banks' international success 136 4 The European Community and Japanese Banks - 1992 and Beyond 140 4.1 Policy Objectives of the European Community 140 4.2 Japanese and European Banks between Competition and Co-operation 146 4.3 Future Japanese-European Relations 168 Notes 171 Bibliography 188 Index 203 List of Tables 1.1 The ten biggest banks in the world, 1988 2 1.2 City bank statistics, 1988 8 1.3 Long-term credit bank statistics, 1988 9 1.4 Trust bank statistics, 1988 10 2.1 Internal and external finance of Japanese companies, 197~4 39 2.2 Japanese firms' overseas funding, 197~6 41 2.3 Incorporated enterprises' equipment investments, 197~7 43 2.4 Composition and growth rate of corporate funds, 197~5 44 2.5 Japan's top twenty zaiteku earners, 1987 45 2.6 Financial assets in the personal sector, 197~5 48 2.7 Internationalization of the Yen, 198~5 52 2.8 Sources of Japan's real GNP growth, 1966-85 59 2.9 Japanese investment in foreign securities, 1973-88 62 2.10 Syndicated loans - rankings of Japanese banks, 197~9 70 2.11 Distribution of Latin American debt by nationality of creditors, 1986 71 3.1 Growth in real output, inflation and employment, 1965-85 74 3.2 Market shares in domestic Japanese securities businesses, 1987 83 3.3 Special relationships between banks and securities houses 85 3.4 Number of main bank mandates of major banks, 1986 91 3.5 Geographical spread of Japanese banks' overseas network. 1975-87 99 3.6 City banks" profits from international business, 19~7 104 3.7 International business of the long-term credit banks, 19~ 106 3.8 Year-end holdings of foreign securities, 1984-6 108 3.9 Japanese banks" offices in Western Europe, 1987 111 3.10 Swiss franc-denominated bond issues by Japanese borrowers, 1981~ 114 3.11 Japanese banks as Eurobond bookrunners, 1986-7 120 vii viii List of Tables 3.12 Japanese banks' lending to UK residents, 1983-7 122 3.13 Size of Japanese banks in Germany, 1988 125 3.14 Characteristics and conditions of two modes of strategy making 130 4.1 Economic benefits of '1992' 146 4.2 Long-term debt ratings of selected international banks, February 1988 151 4.3 Japanese investment in foreign securities, 1981-5, by country 155 List of Figures 1.1 International bank assets by nationality of banks, 1983-8 3 1.2 External net assets of Japan, the US and OPEC- projection 198~2000 4 1.3 Institutional view of the Japanese financial system 6 1.4 Determinants of business strategy 14 1.5 Structure of the strategy analysis 15 2.1 Elements of Japanese banks' regulatory environment 17 2.2 Alternative shapes for Japan's financial system 19 2.3 Japan's financial markets 21 2.4 Growth of selected short-term financial markets, 1975-87 23 2.5 Japanese bonds outstanding, 1986 27 2.6 Government bonds outstanding, 197~6 28 2.7 Channels of corporate fund-raising 37 2.8 Profitability of non-financial Japanese companies, 197~5 39 2.9 Household savings rate in industrialized countries since 1975 47 2.10 Personal loans- growth and market volume, 1980-4 49 2.11 Domestic strategy considerations of Japanese banks 51 2.12 Japanese exports to selected areas, 1965-86 60 2.13 Japanese imports by region of origin, 1965-86 61 2.14 Japan's direct overseas investment, 197~6 63 2.15 Regional structure of Japanese direct investment, 1974-85 64 2.16 Industry structure of Japanese direct investment, 1974-85 65 2.17 Stock of Japanese direct investment, April 1988 66 2.18 Growth of the Euroloan market, 1972-86 67 2.19 Eurobond market - emergence of Asian borrowers and of Euroyen issues, 1968-87 68 2.20 International strategy considerations of Japanese banks 69 3.1 Internationalization of Japanese banks- a strategic model 75 ix X List of Figures 3.2 Conflicts of scope among Japanese financial institutions 77 3.3 New supply of industrial equipment funds, 1965-85 82 3.4 Share ownership in listed Japanese companies, 1957-87 89 3.5 Growth of overseas network of Japanese banks, 1954-86 94 3.6 Overseas loans by Japanese banks, 1973-86 95 3.7 Proportion of international business for Japanese banks, 1975-83 102 3.8 Japanese-Western European trade, 1965-85 116 3.9 Number of new Japanese manufacturing facilities in EC, 1971-86 116 3.10 Japanese banks in London's foreign banking community, 1960--87 118 3.11 Share of international banking business in London, by nationality of banks, 1975-85 119 3.12 Number of foreign banks in Germany, 1972-87 124 3.13 Assets and liabilities of Japanese and US banks in Germany, 1984 127 3.14 Evaluating Japanese banks' strategies: a framework 129 4.1 Macroeconomic effects of EC integration 142 4.2 Strategic pressures for Japanese banks in Europe 147 4.3 Capital-asset ratios of selected Japanese banks, 1987-8 152 4.4 EC trade deficit with Japan, 1970-87 156 4.5 The EC, Japan and the US- the triad imbalance 170