The Sumitomo Trust & Banking Company, Ltd.

5-33, Kitahama 4-chrome
Chuo-ku
Osaka 540-8639
Japan
Telephone: (06) 6220-2121
Fax: (06) 6220-2043
Web site: http://www.sumitomotrust.co.jp

Public Company
Incorporated: 1925
Employees: 5,154
Total Assets: ¥16.7 trillion ($124 billion)(2002)
Stock Exchanges: Osaka Tokyo London
Ticker Symbol: 8403
NAIC: 523991 Trust, Fiduciary, and Custody Activities; 52211 Commercial Banking

The Sumitomo Trust & Banking Company, Ltd., a member of the Sumitomo keiretsu or group of companies, operates as an independent financial concern offering asset management and custodial services as well as traditional commercial banking services. During the 1990s, Sumitomo Trust faced distinct challenges related to Japan’s faltering economy and the high rate of nonperforming, or bad, loans. Amid major restructuring of the Japanese banking sector, Sumitomo Trust remains independent, unlike many of its competitors whose merger activity has created a handful of large megabanks.

Sumitomo Trust’s Origin

Sumitomo Trust is one of many companies that bear the name Sumitomo. Sumitomo, originally a copper producer, was one of Japan’s conglomerates. By subsidizing new ventures with existing operations, Sumitomo branched into numerous businesses, including transport and warehousing, insurance, engineering, and banking.

Sumitomo established a successful banking subsidiary in 1912. The Sumitomo Bank was eager to enter trust banking, but was prevented by financial regulations from doing so. Sumitomo circumvented the regulations by creating another subsidiary, the Sumitomo Trust Company.

Established in 1925, the Trust was actually a spinoff of the Sumitomo Bank, staffed at first with bank personnel. Although technically it was an independent corporation, Sumitomo Trust was controlled by other companies in the Sumitomo group. As a “captive” subsidiary, it functioned as the group’s private trust bank, becoming an important link in an increasingly complex financial organization that included commercial banking, insurance, and corporate finance.

PostWar Challenges

Sumitomo Trust benefited greatly from Japan’s strong industrial growth during the 1930s. But at the same time the government was ruled by a military clique which, threatened by the power of huge industrial groups like Sumitomo, favored their dissolution. This inclination, however, was strongly tempered by the government’s reliance on their industrial might for its massive armament program.

During World War II, Sumitomo Trust was forced to obey strict instructions from the government. When the war ended in 1945, the occupation authority ordered a complete breakup of the Sumitomo group. This meant that Sumitomo Trust’s ties with other group companies had to be cut completely. Each company was purged of managers who overtly supported the war, and each was forced to change its name.

The Sumitomo Trust returned to business in 1948 as the Fuji Trust & Banking Company. As a result of new financial regulations, primarily the Commercial Banking Law, Fuji Trust also was permitted to engage in limited banking activities. In 1950 the company was authorized to deal in foreign exchange, and the following year started trusteeships for investment trusts.

Restoring the Sumitomo Name: 1952

In 1952 industrial laws were liberalized and the company was allowed to change its name back to Sumitomo. In addition, the former Sumitomo companies were permitted to hold minority shares in each other and to conduct regular strategy meetings.

In an effort to maintain leadership in the industry, Sumitomo Trust consistently pioneered new forms of trust management. In 1952 it introduced loan trusts, and in 1957 began pension-trust management.

The company grew steadily during the 1960s, just as it had in its early years. The Trust had many profitable middle-market clients, but its primary sources of business were affiliated Sumitomo companies; it was again, in many ways, the private trust bank for the Sumitomo group.

In 1973, after setting up foreign offices in New York, London, and Los Angeles, Sumitomo Trust opened an international department to gather intelligence on capital markets. The establishment of this department marked the beginning of Sumitomo Trust’s interest in developing a solid international financial network. This was later expanded, with offices in Europe, the Middle East, Australia, and elsewhere in Asia and the Americas.

It was not until the early 1980s, however, that Sumitomo Trust became highly active in international markets, becoming more aggressive in marketing its services to third parties with little or no association with other Sumitomo companies. The Trust’s business expanded accordingly, and by 1987 it was the second largest trust and banking company in Japan.

The company soon outgrew the limited opportunities of its close association with the Sumitomo group, and during the late 1980s it began to forge new relationships with foreign banks and securities dealers. In 1987, it created a securities lending services subsidiary in the United States.

During the 1980s and early 1990s, Sumitomo Trust & Banking remained closely associated with the Sumitomo group—its four largest shareholders were Sumitomo companies. It continued to focus on international finance and maintaining its efficient management structure. As the 1990s progressed, however, Sumitomo Trust faced many challenges brought on by the faltering Japanese economy and bad loans.

Problems Arising in Japan’s Banking Sector: 1990s

As the company’s assets began to deteriorate, Sumitomo Trust began a restructuring effort in 1992 that included layoffs, a slowdown in new branch openings, and cost cuts related to capital spending. The firm’s financial situation continued to worsen with pretax profits falling by 6.1 percent in 1992 and then by 30.7 percent in 1993.

A significant factor related to Sumitomo Trust’s faltering bottom line was the firm’s exposure to bad or nonperforming loans. Housing loan companies were established in Japan in the 1970s by commercial banks to handle residential mortgage lending, a business service that a bank could not provide. During the 1980s, however, Japan began changing its laws, which allowed banks to offer mortgage lending themselves. To deal with the changing laws, the housing loan companies sought out the commercial real estate market during the 1980s and began lending at breakneck speed. When the Japanese property market collapsed in the late 1980s, housing loan companies and the major commercial banks that funded them were left with large amounts of bad loans. In fact, in 1994 the Financial Times reported that nearly 60 percent of housing company loans were bad. Sumitomo Trust felt the effects of the crisis in 1994 when Nippon Mortgage Co., one of its largest debtors, declared bankruptcy with nearly US$1.2 billion in debt owed to the firm. As such, Sumitomo Trust—and the majority of Japan’s large banks—spent the 1990s writing off bad loans.

In the late 1990s, Japan began to restructure its financial sector in an attempt to get its major banks back on track. The Financial Reconstruction Commission (FRC) began to force Japan’s largest banks to merge and form business alliances and also laid the groundwork for new banking regulations. Sumitomo Trust became its target in 1998 when the government pushed it into merger talks with the Long-Term Credit Bank of Japan (LTCB), a bank in financial ruin. Sumitomo Trust remained independent, however, as LTCB was nationalized, renamed Shinsei Bank, and then sold to U.S.-based Ripplewood Holdings LLC in 2000.

Company Perspectives:

Our mission is to be an indispensable financial institution in Japan, capitalizing on our management autonomy and our business model and gaining support from our stakeholders, including our shareholders and customers.

Key Dates:

1925:

The Sumitomo Trust Company is established.

1948:

The company returns to business after the war as Fuji Trust & Banking Company.

1952:

The firm is allowed to change its name back to Sumitomo Trust; loan trusts are introduced.

1973:

Sumitomo Trust opens an international department to gather intelligence on capital markets.

1987:

By now, the company is the second largest trust and banking company in Japan.

1994:

Pretax profits fall by 30.7 percent due to bad loan write-offs.

2000:

Japan Trustee Services Bank is created as a joint venture with Daiwa Bank.

Looking Ahead in the New Millennium

Sumitomo Trust held on to its independence into the new millennium. While it continued to write off bad loans, it appeared to weather the financial storm better than its competitors. In fiscal 2001, it was the only Japanese bank whose credit costs did not exceed net business profit—this was the first time in eight years that the firm reported such results. Foreign investors held a 16.6 percent stake in the firm, a greater share than any other Japanese banking concern—and its share performance was higher than the industry average. As the company claimed that its independence could be maintained because of its solid management system, it continued to seek out key alliances that would improve profitability and increase market share. Sumitomo Trust forged one such alliance with Daiwa Bank—now called Resona Holdings Inc.—in 2000 when it created Japan Trustee Services Bank in a joint venture.

The company announced its Revised Plan for Restoring Sound Management in August 2001. As part of this initiative, Sumitomo Trust planned to increase net profit and focus on its core trust business in order to increase the percentage of fee income to gross profit—27 percent in 2001—to 50 percent by 2005. While Japan’s financial and banking sectors continued to restructure under intense global scrutiny, Sumitomo Trust management was confident that the company would achieve future success.

Principal Subsidiaries

The Sumishin Shinko Company Ltd.; Sumishin Business Service Company Ltd.; STB Personnel Service Co. Ltd.; STB Investment Corp.; Sumishin Loan Guaranty Company Ltd.; Sumishin Guaranty Company Ltd. (98.8%); Japan Trustee Services Bank Ltd. (50%); Businext Corp. (40%); The Sumitomo Trust Finance Ltd. (Hong Kong); Sumitomo Trust and Banking S.A. (Luxembourg); STB Finance Cayman Ltd.; FCSC Corp.; STB Cayman Capital Ltd.; STB Preferred Capital (Cayman) Ltd.; Sumitomo Trust Banking Co. (United States).

Principal Competitors

Resona Holdings Inc.; Mitsui Trust Holdings Inc.; Mizuho Asset Trust & Banking Co.

Further Reading

“Bad Loan Disposal by Japan’s Trust Banks Doubles Forecasts,” AsiaPulse News, May 24, 2000.

Baker, Gerard, “Japan’s Banks Get Tough on Debt,” Financial Times (London), July 13, 1994, p. 32.

Bremner, Brian, “Cleaning Up Japan’s Banks—Finally,” Business Week, December 17, 2001.

Bremner, Brian, and Emily Thornton, “Bad Banks: Why Japan’s Pols Are Paralyzed,” Business Week, October 5, 1998.

Rowley, Anthony, “Japanese Bank Merger Talks Spark Rumours Over FRC’s Role,” Banker, February 1999, p. 6.

——, “LTCB Becomes Japan’s Test Case for Mergers,” Banker, September 1998, p. 6.

“Sumitomo Trust Eyes Deep Cut in Costs,” Jiji Press Ticker Service, October 8, 1992.

—update: Christina M. Stansell

The Sumitomo Trust & Banking Company, Ltd.

4-5-33, Kitahama
Chuo-ku
Osaka 541
Japan
(06) 220-2121

Public Company
Incorporated: 1925
Employees: 6,759
Assets: ¥16.58 trillion (US$132.66 billion)
Stock Index: Osaka Tokyo

Sumitomo Trust & Banking is one of many companies that bear the name Sumitomo. Sumitomo, originally a copper producer, was one of Japan’s conglomerates. By subsidizing new ventures with existing operations, Sumitomo branched into numerous businesses, including transport and warehousing, insurance, engineering, and banking.

Sumitomo established a successful banking subsidiary in 1912. The Sumitomo Bank was eager to enter trust banking, but was prevented by financial regulations from doing so. Sumitomo circumvented the regulations by creating another subsidiary, the Sumitomo Trust Company.

Established in 1925, the Trust was actually a spinoff of the Sumitomo Bank, staffed at first with bank personnel. Although technically it was an independent corporation, Sumitomo Trust was controlled by other companies in the Sumitomo group. As a “captive” subsidiary, it functioned as the group’s private trust bank, becoming an important link in an increasingly complex financial organization that included commercial banking, insurance, and corporate finance.

Sumitomo Trust benefited greatly from Japan’s strong industrial growth during the 1930s. But at the same time the government was ruled by a military clique which, threatened by the power of huge industrial groups like Sumitomo, favored their dissolution. This inclination, however, was strongly tempered by the government’s reliance on their industrial might for its massive armament program.

During World War II, Sumitomo Trust was forced to obey strict instructions from the government. When the war ended in 1945, the occupation authority ordered a complete breakup of the Sumitomo group. This meant that Sumitomo Trust’s ties with other group companies had to be cut completely. Each company was purged of managers who overtly supported the war, and each was forced to change its name.

The Sumitomo Trust returned to business in 1948 as the Fuji Trust & Banking Company. As a result of new financial regulations, primarily the Commercial Banking Law, Fuji Trust was also permitted to engage in limited banking activities. In 1950 the company was authorized to deal in foreign exchange, and the following year started trusteeships for investment trusts.

In 1952 industrial laws were liberalized and the company was allowed to change its name back to Sumitomo. In addition, the former Sumitomo companies were permitted to hold minority shares in each other and to conduct regular strategy meetings.

In an effort to maintain leadership in the industry, Sumitomo Trust consistently pioneered new forms of trust management. In 1952 it introduced loan trusts, and in 1957 began pension-trust management.

The company grew steadily during the 1960s, just as it had in its early years. The Trust had many profitable middle-market clients, but its primary sources of business were affiliated Sumitomo companies; it was again, in many ways, the private trust bank for the Sumitomo group.

In 1973, after setting up foreign offices in New York, London, and Los Angeles, Sumitomo Trust opened an international department to gather intelligence on capital markets. The establishment of this department marked the beginning of Sumitomo Trust’s interest in developing a solid international financial network. This was later expanded, with offices in Europe, the Middle East, Australia, and elsewhere in Asia and the Americas.

It was not until the early 1980s, however, that Sumitomo Trust became highly active in international markets, becoming more aggressive in marketing its services to third parties with little or no association with other Sumitomo companies. The Trust’s business expanded accordingly, and by 1987 it was the second-largest trust and banking company in Japan.

The company soon outgrew the limited opportunities of its close association with the Sumitomo group, and during the late 1980s it began to forge new relationships with foreign banks and securities dealers. In spite of an impending liberalization of Japanese financial laws, Sumitomo has not yet announced plans to develop any capabilities of its own in securities dealing.

Sumitomo Trust & Banking is bound to remain closely associated with the Sumitomo group (its four largest shareholders are Sumitomo companies). It will, however, take on an increasingly high profile in international finance. Its greatest assets are its highly efficient management structure and membership in the Sumitomo group.

Principal Subsidiaries

Sumitomo Trust International Limited; Sumitomo Ivory & Sime Limited; Sumitomo Trust Finance (Switzerland) Limited; Sumitomo Trust & Banking (Deutschland) AG; Sumitomo Trust & Banking (Luxembourg) S.A.; The Sumitomo Trust Finance (H.K.) Limited (Hong Kong); STB Financial Futures (Singapore) Pte. Limited; Sumitomo Trust & Banking Co. (U.S.A.); Sumitrust Security Pacific Investment Managers, Inc. (U.S.A.).