Merrill Lynch Unveils Japan Brokerage Chain Plans

US giant Merrill Lynch unveiled long-awaited plans for a retail brokerage business in Japan on Thursday, a move expected to fuel competition as the country rolls toward Big Bang financial deregulation.

Merrill Lynch will create a new firm, Merrill Lynch Securities Japan, which will hire as many as 2,000 employees of Japans failed Yamaichi Securities Co, and occupy offices currently housing Yamaichi operations.

The new company, which will primarily serve retail investors, could be ready to open its doors for business as early as June, pending approval from Japans Finance Ministry.

While Merrills intention to build a domestic brokerage chain out of the rubble of Yamaichi has been widely reported for months, Thursdays announcement was the first time it had offered official details of a plan that is increasingly seen as emblematic of the deregulation expected in coming months.

 

It also comes amid mounting concern that Japans Big Bang, named after a similar deregulation of British markets, will squeeze business from Japanese brokerages as more sophisticated U.S. and European counterparts jockey for market share. The Big Bang begins on April 1, the start of Japans business year.

Merrill executives did their best to ease concerns that it would dominate the potentially lucrative Japanese market, with its 1,200 trillion yen ($9.75 trillion) in personal savings.

Saying the new company would face stiff competition from Japanese rivals, Merrill executives stressed that it would seek a role commensurate with Merrills experience in other markets.

We would not think it inappropriate to approach a market share similar to what we have achieved in other major markets, Winthrop Smith, chairman of Merrill Lynch International, told reporters. He said Merrill accounted for between eight and 10 percent of trading on the New York Stock Exchange.

Merrills strategy of targeting retail investors, long the exclusive domain of Japans Big Four brokerages, breaks with the traditional foreign brokerage approach to the Japanese market, which focuses on institutional and corporate clients.

But Smith said the new company would be successful as Japanese investors, aware of changes in the regulatory environment, looked to maximise investment returns.

With the global economy, there is a new paradigm in financial services, he said. Smith said profitability was possible in about three years and most of the $200 to $300 million the brokerage expects to use to capitalise the new firm would be for payroll expenses.

Speaking beneath the new companys logo a light blue globe adorned with Merrills famous bull and a banner in Japanese reading Commitment to the Japanese market, Smith also presented Merrill as a concerned corporate citizen.

He said all of Yamaichis 7,500 employees had been invited to apply for positions at the new firm and no employee would be asked to take a pay cut to join the wholly owned subsidiary.

Our intention is to never reduce compensation, only to offer chances to earn more in the future, he said. Smith said no one from Yamaichi had technically been hired yet by Merrill, but agreements had been struck with the Japanese brokerages systems team and executive positions would be filled equally by representatives of Yamaichi and Merrill.

Ronald Strauss, chief operating officer of Merrill Lynch International, will become president and chief operating officer of the new company.

Japans economy and stock market have been buffeted by a downturn for most of this decade. Merrill styled its move into the worlds second-largest economy as a long-term commitment.

The announcement today is a ringing note of confidence in the Japanese economy and the Japanese market, said Herbert Allison, president and chief operating officer of the New York-headquarted securities house in a videotaped address. Let there be no mistake, Merrill Lynch is bullish on Japan.