Yamaichi Securities Company, Limited

4–1, Yaesu 2-chome
Chuo-ku
Tokyo 104
Japan
(03) 276–3181

Public Company
Incorporated: 1943
Employees: 8,816
Assets: ¥3.3 trillion (US$26.1 billion)
Stock Index: Tokyo Osaka Nagoya Paris

Yamaichi Securities Company, the smallest of Japan’s Big Four securities houses, deals in a variety of foreign and domestic securities. As Japanese industry has grown, Yamaichi has profited handsomely from its equity and capital market activities. In recent years, with the deregulation of financial and capital markets worldwide, the company has become a world class investment banker and securities brokerage house.

Although incorporated in its present form in 1943, Yamaichi can claim to be the oldest of the major Japanese securities houses. Its origins date back to 1897, when the Koike Shoten was licensed as a broker on the Tokyo Stock Exchange; the Yamaichi name was adopted 20 years later. At that time, securities trading was very primitive in a country still struggling to industrialize. Nevertheless, Yamaichi grew steadily throughout the 1920s and 1930s, even though securities trading before World War II was limited to a very small segment of the Japanese population. The economy for the most part was dominated by family-controlled industrial groups known as zaibatsu (literally “money cliques”).

By the time Yamaichi Securities was incorporated in 1943, Japanese military success in the Pacific had already peaked. Prices dropped drastically, and trading remained unpredictable until the end of the war. After the war, Japan was devastated both physically and psychologically. The zaibatsu were broken up by the Allied occupation forces, which began the reorganization of Japanese society and the economy. Not only was the trading of defenserelated securities prohibited, but all trading on the stock exchanges, which had been suspended near the end of the war, was also prohibited until 1949. Yamaichi survived by buying and selling securities over the counter at its offices. Trading in this manner was relatively profitable since many people wanted to exchange their holdings for cash during the difficult postwar years.

In 1949, the principal securities exchanges were reopened. Yamaichi lead-managed the first Japanese convertible bond issue, for the Tosa Electric Railway Company. The exchanges had been open only a short time when stock prices started to drop: in the 14 months following the Tokyo Stock Exchange’s reopening, the Nikkei Stock Average fell from ¥175.21 to ¥85.25. A lack of confidence in the economy further contributed to the market’s downslide. However, at the beginning of the Korean War in June, 1950, the production demands of the United Nations Forces began to invigorate the Japanese economy. The resulting corporate expansion dramatically increased the number of stock issues, as well as Yamaichi’s underwriting revenue and brokerage commissions.

The stock market boom was followed by an increase in bond issues a few years later, and the Japanese economy was on the road to full recovery. Yamaichi, along with the other large securities houses, began a massive public relations effort designed to encourage the Japanese to invest in securities. Investment trusts became a convenient way for people to invest their savings, and by 1959, Yamaichi’s investment trusts were so popular that a separate company, the Yamaichi Investment Trust Management Company Ltd., was set up to manage them.

Throughout the 1960s, the Japanese economy grew at the staggering rate of 10% a year. Yamaichi forged close ties to Japanese companies, and its underwriting business became increasingly profitable—underwriting remains one of Yamaichi’s strongest areas today. Bond issues also increased substantially during the early 1960s as companies discovered the advantages of borrowing. Capital in Japan, however, was somewhat scarce, and so foreign investment began to play a more vital role. Bond issues of Japanese companies were well-received on the New York market, but U.S. legislation intended to improve America’s balance of trade put an end to the practice in 1963. Japanese companies had to seek capital elsewhere.

At the end of 1963, the Japanese government tried to tighten the money supply. The result was a severe recession the following year. Japanese manufacturing concerns were hit hard; many were forced into receivership. The stock market’s plunge prompted the Ministry of Finance to prohibit new stock issues. A group of financial companies, Yamaichi included, joined together to purchase stocks when necessary to help stabilize prices. Nonetheless, stock prices dropped further.

The panic of 1964–1965 hit Yamaichi harder than any other securities house. Because of fierce competition in the securities industry, the company’s management used poor judgment in aggressively marketing stocks. The company was accused of keeping certain stock prices artificially high until it could unload the entire issue it had underwritten. Stocks were pushed like “weekly specials” at grocery stores. Yamaichi was certainly not the only securities house to engage in such practices, but it, and the others, did receive a great deal of negative publicity. As the recession worsened, the Japanese Securities and Exchange Commission blamed the securities houses for undermining public confidence in the markets. The Japanese SEC imposed new licensing requirements and called for the reorganization of the securities houses. Yamaichi’s president was removed as a result.

As if this was not bad enough, Yamaichi had accumulated a huge debt by expanding too quickly in the late 1950s and early 1960s. The company owed $214 million, primarily to the Fuji Bank, Mitsubishi Bank, and the Industrial Bank of Japan. Only government intervention saved the company from bankruptcy: the Bank of Japan, the central bank, approved unlimited loans to rescue the ailing company, and Yamaichi’s three biggest creditors temporarily suspended interest payments. Teru Hidaka was brought in as president to reorganize Yamaichi. Hidaka cut down on staff, trimmed some branches from Yamaichi’s domestic network, and sold some of the company’s unneeded assets. He also oversaw Yamaichi’s implementation of new government regulations. By 1967, Yamaichi was on its feet again.

In the late 1960s, Japan relaxed its barriers to foreign investment somewhat. Yamaichi responded by asserting itself in foreign markets, particularly in Europe. This expansion picked up in the 1970s. In 1973, Yamaichi established a universal bank in Amsterdam, Yamaichi International (Nederland) N.V., and also set up a representative office in Paris. In 1974, Yamaichi International (Deutschland) was established, followed in 1976 by Yamaichi Bank (Switzerland), headquartered in Zurich.

Increased activity in the bond markets paralleled this geographical expansion. Sophisticated new types of bonds allowed almost tailor-made investments, and Euroyen bonds grew in popularity. Yamaichi became a major player in these markets, showing particular strength as an underwriter. By the end of the decade it was clear that capital markets would continue to globalize. Japan’s strong export industries had made the country capital-rich. As Japanese investors looked for opportunities in Europe and the United States, Yamaichi was a key intermediary.

By 1980, Yamaichi Securities was firmly established throughout the world. Its London and New York subsidiaries complemented its primary operations, based in Tokyo; in 1986 they became members, respectively, of the London and New York stock exchanges. The changes in the world’s financial markets during the 1980s amounted to nothing short of a revolution. Many trade barriers were eliminated, allowing even greater innovation in security issues. New types of bonds found their way into the markets, and foreign listings on the stock exchanges increased.

Japanese tastes for U.S. treasury notes brought Yamaichi deep into that market in the mid-1980s. The company was the last of the Japanese Big Four, however, to be designated a primary dealer by the New York Federal Reserve, in late 1988. By the end of the decade the four Japanese houses accounted for more than 7% of the entire U.S. treasury bond market.

In the mid-1980s, Yamaichi became increasingly active in mergers and acquisitions. As hostile takeovers are virtually nonexistent in Japan, Yamaichi’s role had been one of making good corporate matches rather than working out takeover strategies. This style of mergers and acquisitions was foreign to American and European corporations, so Yamaichi’s expertise made its services attractive to foreign companies interested in purchasing Japanese firms. Although most deals of this kind were kept secret, the Japanese press reported that Yamaichi assisted Shell Oil in the acquisition of 45% of Showa Oil, and Canon Sales’s purchase of a 19% interest in Nippon Typewriter.

In October, 1987 the New York stock market crash wreaked havoc throughout the international financial community. Yamaichi suffered a major setback in its development of the U.S. market since many of its Japanese equities customers were frightened out of the market while at the same time Yamaichi faced intense competition from U.S. securities firms. By 1988, Yamaichi, like the other Japanese securities houses, had cut back on its New York staff instead of expanding as it had hoped to do.

Nonetheless, by 1989 Yamaichi was earning 20% of its profits from its overseas operations. Although it still struggles to become a major dealer in the U.S. market, Yamaichi Securities has come of age. Japan’s continued economic prosperity ensures Yamaichi a solid share of the European equity and capital markets, and promises to attract more attention from American investors and security issuers. As financial markets continue to become more complex and competitive, Yamaichi remains flexible and ready to greet the new challenges and opportunities that change will bring.

Principal Subsidiaries

Yamaichi Investment Trust Management Co., Ltd.; Yamaichi Research Institute of Securities and Economics, Inc.; Yamaichi International Capital Management Co., Ltd.; Yamaichi Uni Ven Co., Ltd.; Yamaichi Computer Center Co., Ltd.; Yamaichi Real Estate Inc.; Yamaichi Echo & Co., Ltd.; Yamaichi Enterprise, Inc.; Yamaichi General Finance Co., Ltd.; Yamaichi World Tourist Inc.; Yamaichi Card Services Co., Ltd.; Yamaichi International (America), Inc.; Yamaichi Financial Services, Inc.; Yamaichi International (Canada) Limited/Limitee; Yamaichi International (Europe) Limited; Yamaichi Bank (U.K.) Pic; Yamaichi International (Nederland) N.V.; Yamaichi International (Deutschland) GmbH; Yamaichi France S.A.; Yamaichi Bank (Switzerland); Yamaichi International (Middle East) E.C.; Yamaichi International (Hong Kong) Limited; Yamaichi Merchant Bank (Singapore) Limited; Yamaichi Futures Private Limited.