This is a great story.
On wooing those pent up Japanese assets here is a story from WSJ that is a fascinating tale of "Carpe Diem".
The following reproduced for personal use only:
Merrill Lynch Establishes Itself To Invade Japan's Retail Market
By BILL SPINDLE
Staff Reporter of THE WALL STREET JOURNAL
TOKYO -- America's financial giants just can't seem to get enough of Japan. Banks, brokerage firms, fund managers and insurers alike, sensing an opening created by deregulation and the scandals that have hammered Japan's firms, are diving into the market as never before.
Few, though, have rooted as fast as something called "Project Blossom". That's Merrill Lynch & Co.'s code name for what was unthinkable a year ago: a foreign invasion of the retail brokerage business here. "Merrill Lynch?" frets a Nomura Securities Co. director. "They'll be hard to beat."
How Merrill came so quickly to worry even Nomura, Japan's biggest, toughest securities firm, is a case study in cracking Japan's rapidly changing financial-services industry. Merrill seized the moment -- the failure of Yamaichi Securities Co. last November -- to woo thousands of experienced employees to help build a nationwide branch network in just months.
Among Merrill's point men in a frenzy of negotiations stretching from December to February were the son of one of the families whose name once graced the firm's door, an investment banker who snowboards in the Himalayas and another who body surfs in Japan's winter oceans. The negotiations nearly failed at least twice -- in January, when an important computer-system outsourcing arrangement collapsed, and in February, when Merrill suddenly seemed unable to hire the staff it needed to run the computer system itself. In the end, Merrill clinched a key hire, and the staffers it needed followed.
Critical Times in Japan
That achievement gets Merrill into retail securities brokerage here at a crucial juncture. Many analysts say Japan is primed for a U.S.-style investment boom; its aging population desperately needs better returns on a whopping $10 trillion in personal savings now sitting mostly in low-interest bank accounts. Foreign securities firms have long dreamed of courting those potential customers.
U.S. firms are Japan's fastest-growing asset managers, its most-respected brokerage-research houses and its busiest stockbrokers. FMR Corp.'s Fidelity Investments is pioneering Japan's first big push to sell mutual funds via telephone and direct mail. General Electric Co.'s GE Capital Corp. recently became the first foreign firm to crack the Japanese life-insurance industry, an asset-management stronghold here. And Goldman, Sachs & Co.'s mutual-fund operation in Japan has grown to ninth-largest in the country, from nothing, in less than two years.
"We're focusing on Japan as if it's an emerging market, a huge break-out opportunity," says Mark Schwartz, president of Goldman Sachs (Japan)
Ltd.
The recently announced merger plans of Travelers Group Inc. and Citicorp, if approved in the U.S., could give another boost to foreign advances on Japan's retail turf. Citicorp's Citibank unit is already attracting droves of retail depositors in Japan and could become even more appealing with an array of other financial products to offer. But no venture will push foreign companies further into financial services here than Project Blossom, so named because of Merrill's initial hope to open its retail branches this month while Japan's beloved cherry trees were blossoming.
A High-Stakes Gamble
It's also one of the highest-stakes gambles a foreign brokerage firm has taken in Japan. Certainly, few companies have ever tried to set up a far-flung retail network so quickly, anywhere. Just months before it planned to open its doors, Merrill Lynch Securities Japan Ltd. had no employees, no head office and no branches, except on paper. "I'm president of a concept," Ronald Strauss, who will head the new company,quipped at the time. Indeed, the opening has been postponed to July.
Last November, Merrill was just another foreign brokerage firm casting about for ways to reach ordinary Japanese and their vast savings. Its executives thought they had the right strategy, the asset-management focus they had developed in the U.S. and were trying to spread globally. They also thought the timing was right. Merrill already had a booming business in Japan's institutional markets -- an indication, they believed, that Japan was warming up to foreign financial institutions. In July, Merrill had formed a team to evaluate its options for getting into retail -- and found that none looked promising.
Until Nov. 24. On that Monday, with tears streaming down his face, Shohei Nozawa, president of Yamaichi Securities, made an announcement that shook the foundations of Japanese finance: After 100 years in business, the country's fourth-largest brokerage firm would shut down, in the largest corporate failure in Japanese history. Yamaichi had been sucked into an industry racketeering scandal and then cornered into admitting to its bankers that a $2 billion loss had been concealed on affiliates' books for years.
Merrill was aware of the unfolding crisis. Just days before, Hisashi Moriya, Merrill's Japan chairman, had accepted an invitation from Yamaichi officials to pay what he thought was a courtesy visit. Instead, he says, they offered to sell a majority stake in the company. In the end, Merrill didn't bite. But its interest had been piqued. "It was a rapidly evolving situation. We didn't have enough facts," says Winthrop Smith, Merrill's head of international operations. "At the same time, we understood this was a unique opportunity." Merrill's local managers were told to watch the situation closely.
Planting the Seeds
The seeds of Project Blossom were planted the next week, when two men dined on sushi in Tokyo's Imperial Hotel. Keichi Mitake and Kunihiko Kumagai had known each other from working in New York in the 1980s: Mr. Kumagai ran debt syndicates for Nomura, and Mr. Mitake did the same for Yamaichi. Now, Mr. Kumagai was Merrill's chief investment banker in Japan. Mr. Mitake, a top Yamaichi official, was soon to be out of a job.
Would Merrill, Mr. Mitake asked, invest in a new brokerage company,one that would hire much of Yamaichi's sales and back-office force? Mr.Kumagai says the two men talked through dinner and then over drinks in Tokyo's Ginza entertainment district. "The more we talked, the more
excited we got," he adds. "In many ways, this was a golden opportunity."
Weeks passed. Merrill, it turned out, wasn't interested in a passive
investment. But if it could own and run the company, "now there was
something that made sense to us intuitively," says Mr. Smith, the last
member of one of Merrill's name-on-the-door families still at the firm.
After a weekend of body surfing in the icy Pacific not far from Tokyo, Merrill's Japan chairman, Mr. Moriya, took the idea to the Ministry of Finance on Dec. 24. Following the custom even with such delicate matters, he made no appointment with the powerful mandarins who oversee Japan's financial system. Instead, he just showed up before lunch, when he knew they would be in their offices.
The officials were receptive, Mr. Moriya says. After all, one of the biggest headaches from Yamaichi's failure was how to find jobs for 7,500 soon-to-be-unemployed workers in a shrinking industry. That night, Japanese journalists descended on Mr. Moriya's apartment, and the still-sketchy plan was the top story in several Japanese newspapers the next day: "Merrill to Take Over 50 Branches From Yamaichi, Hire 2,000 Workers."
Merrill, wary of raising expectations for a plan it wasn't sure about pursuing, conceded only that it was exploring ways to enter Japan's retail market by using Yamaichi's staff and facilities.
Personnel Man Pleased
But at Yamaichi headquarters, Kazutaka Nakaichi, the head of the personnel department, felt relieved. He figured that the task of helping find jobs for Yamaichi employees suddenly looked a lot easier.
On Jan. 10, Merrill flew in reinforcements. Ronald Strauss, Mr. Smith's right-hand man in Merrill's international operations, hadn't been reading newspapers while on a honeymoon just before Christmas. So the first he heard of Project Blossom was over Christmas Day brunch, from his father, as he and his new wife swung through Los Angeles on the way home. "I told him, 'I doubt it's true,' " the younger Mr. Strauss says. But within two weeks, Mr. Strauss found himself in Tokyo. Within six, he was president of the new company.
Joining him was Richard Dunn, who runs Merrill's debt business in Europewhen not snow boarding in the Himalayas. Raised in Tokyo (the son of a British diplomat) and fluent in Japanese, Mr. Dunn was a major force in the growth of Merrill's institutional business in Japan during the early 1990s, when he ran the company's equity business here. Mr. Dunn spent his first three days back in Tokyo in a marathon series of interviews with Yamaichi employees ranging from receptionists to managing directors.
Things still looked promising. Yamaichi appointed a team of eight senior managers to work with Merrill, which set a deadline of Jan. 23 for a decision.
But as the date approached, the Merrill team fretted about Yamaichi's computer system and the people who would run it. After Yamaichi failed, they had joined en masse a Japanese technology firm to form Japan Financial Information Technology Services Inc. Jfits, as a result, was the only outfit with people capable of getting Yamaichi's idiosyncratic in-house computers running in time for the new company. Merrill looked closely at having Jfits run the system under an outsourcing contract. But as Jfits refined its business strategy, Merrill officials worried that their company wouldn't get the priority it needed, several Merrill team members say.
A Sudden Pall
Suddenly, the whole project was thrown into doubt. On Jan. 22, Merrill scrapped its deadline for a decision the next day. "If we had had to decide then, we wouldn't have gone forward," Mr. Strauss says. By this time, the Yamaichi people also "were getting very nervous," Mr. Nakaichi says. They had been expecting a Merrill announcement before Yamaichi began winding down its operations, and the first 2,000 workers were to lose their jobs the following week.
Merrill regrouped. Mr. Strauss left for New York, Mr. Dunn for London. The local team tried a new tack on the computer problem: Gain control of Yamaichi's system and hire enough staff away from Jfits to operate it in-house. Within days, those efforts were bearing fruit. Mr. Strauss and Mr. Dunn were sent back to Tokyo. Mr. Dunn, who had visited Merrill offices in Zurich and Frankfurt en route to London, made it home just in time to grab three shirts, spend four hours in his London office and catch a plane to Tokyo.
Yamaichi employees were still largely in the dark, though, and termination day was looming for a quarter of them. Merrill feared the top talent would drift off to other jobs, so it went on the offensive. It invited all Yamaichi employees to 10 spots around the country, where representatives would explain the project to them and pitch Merrill's philosophy. For Merrill executives, the meetings were another reminder of the chasm they were trying to span between the corporate cultures. At a packed session in Tokyo, Merrill's representatives gave an impassioned explanation of its asset-growth strategy. Yamaichi employees' concerns ran more toward the mundane: One asked whether female receptionists at Merrill, as at Yamaichi, would have to wear uniforms. (They don't.)
Behind the scenes, concerns over the computer system persisted. That's when the pressure began to build on a highly respected veteran of Yamaichi's computer division: Kenzo Komiyama. Merrill had worked closely with Mr. Komiyama, who by this time sat on the Jfits executive board, and they knew he had the stature to persuade other systems workers to join. "Komiyama was the key," Mr. Kumagai says. "We had to convince him."
Time Squeeze
Merrill had less time than it thought. By Friday, Feb. 6, Jfits officials knew that Merrill wouldn't accept the outsourcing arrangement, says Teiichi Aruga, executive vice president at Jfits. The next day, a Saturday, Mr. Aruga convened Jfits executives to decide how to respond. At day's end, he says, he told the Jfits board to stop cooperating with Merrill.
Getting home from that meeting at 1 a.m., Mr. Komiyama found that Merrill's Mr. Kumagai had left a message. Returning the call, Mr. Komiyama reluctantly agreed to meet Merrill officials at a hotel in the city of Yokohama the next morning. There, Mr. Komiyama begged Merrill to reconsider the outsourcing arrangement with Jfits. He says he saw this as the best way for Yamaichi's former systems division to remain together. "I had worked with these people for 28 years," he says. But Merrill officials held firm.
Mr. Komiyama went home. Merrill officials returned to Tokyo, where they met with the Yamaichi support team and decided the Yamaichi team should make one last run at Mr. Komiyama. Gathering that evening around a long table at Merrill's Tokyo headquarters, members of the two groups placed a conference call to Mr. Komiyama at home. For two hours, Yamaichi officials took the lead in cajoling, counseling and consoling Mr.Komiyama, who remained reluctant to make a move that would inevitably break up colleagues who had worked together for so long.
They persuaded him with a typically Japanese appeal: The jobs of 2,000 other Yamaichi employees, they made clear, were hanging in the balance. "I don't know if the whole deal would have failed, but that certainly was on my mind," Mr. Komiyama says. "The more they talked, the weaker I got."
On Monday, the scramble for talent began. Not until Thursday was Merrill sure it could hire the hundred or so staffers it needed.
All the while, Yamaichi's rank and file waited. Rumors swirled that the long-awaited announcement would come on Monday, then Tuesday, then Wednesday. Finally, on Thursday, Feb. 12, before TV cameras and hundreds of Japanese reporters, Merrill released the news. And at 4:53 p.m. that same day, Mr. Nakaichi, who now works for Merrill, pushed the button on what he calls the "historic e-mail" to all Yamaichi employees: "Merrill Lynch will establish a new retail brokerage company ..." it began. |
