Swiss Bank Corporation and Long-Term Credit Bank (LTCB) of Japan yesterday announced plans to create a joint investment banking and asset management business in Japan.
The deal - expected to involve an investment of about $850 million by SBC - is the most comprehensive banking sector alliance between a Japanese and non-Japanese group.
The collaboration will focus on three joint ventures. One will link the existing investment banking operations of SBC Warburg in Japan with the securities affiliate of LTCB into a new merged unit.
This is the first time a foreign group has fully merged its investment banking operations with a Japanese partner in Japan. In addition to their planned joint asset management venture, the two groups also hope to set up the countrys first private banking operation.
The deal marks a further expansion for SBC in investment banking across the world after its takeover two years ago of S.G. Warburg Group, and its $600 million purchase in May of Dillon Read, the Wall Street investment bank.
The bank has expanded heavily in investment banking as an alternative to the low returns it has achieved from domestic retail banking in Switzerland. SBC Warburg is among the top European investment banks with global ambitions.
The deal demonstrates the growing interest in Japans proposed Big Bang financial deregulation reforms among western banks. SBC and LTCB, Japans second largest long-term credit bank, said they forged the alliance to take advantage of opportunities from Big Bang.
Katsunobu Onogi, LTCB president, said: This strategy realises one objective - to take Japan to the world and bring the world to Japan. Our alliance with SBC is the perfect response to the opportunities provided by the Big Bang.
The proposed alliance, which was agreed in a letter of intent yesterday, is expected to be finalised in September. As part of the deal, LTCB and SBC will purchase a 3 per cent equity stake in each other as a token of their commitment.
A 3 per cent stake in LTCB and SBC is equivalent to about Y32 billion ($280 million) and Y75 billion respectively.
LTCB is also seeking board approval for raising of Y200 billion of new capital, including Y130 billion worth of preferred stock. SBC hopes to purchase half of the preferred stock. The moves will leave SBC and LTCB among the largest five shareholders in each other. SBCs total investment will be almost $850 million, officials said yesterday - its largest investment since it purchased SG Warburg, its investment banking arm, in 1995.
By comparison the purchase of Dillon Read, the US investment bank, earlier this year was around $600 million.
SBC said the agreement reflected its determination to become a big player in Asia and its hope that Big Bang would create new opportunities in Japan.
