The Yasuda Trust and Banking Company, Limited

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The Yasuda Trust and Banking Company, Limited

2-1, Yaesu 1-chome
Chuo-ku
Tokyo 103
Japan
(03) 3278-8111
Fax: (03) 3281-6947

Public Company
Incorporated: 1925
Employees: 5,011
Total Assets: ¥23.78 trillion (US $223.63 billion) (1996)
Stock Exchanges: Tokyo Osaka London
SICs: 6021 National Commercial Banks; 6022 State Commercial Banks & Trust Companies; 6211 Security Brokers, Dealers & Flotation Companies

Since establishing its first overseas branch some two decades ago, Yasuda Trust and its subsidiaries have been actively engaged in financing, money market operations, trustee operations, and the trading and underwriting of securities. Central to these operations is the Bank’s worldwide network of 26 offices. In Japan, Yasuda Trust enjoys valuable relationships with numerous corporate and individual clients, serving their needs through its network of 58 branches nationwide.

The Yasuda Trust and Banking Company, Limited is a leading Japanese financial institution specializing in pension trust management, real estate services, and securities-related services, in addition to offering banking services. It is one of only a limited number of Japanese firms licensed to engage both in banking and in trust management. Although it has suffered through a particularly troubled period in the early and mid-1990s, Yasuda has been one of the most consistently successful trust banks and has made significant contributions to the Japanese economy through both trust management and industrial financing.

Zaibatsu Period, 1923-1945

Yasuda was once one of the most powerful industrial groups, called zaibatsu, in Japan. The Yasuda group was built mainly on financial services, including banking, insurance, and lending. Yasuda decided to enter the trust business soon after the passage of the trust banking laws in 1923. In 1925, several financiers, led by Yasuda, established the Kyosai (“mutual aid”) Trust Company. Yasuda quickly expanded its interest in the trust bank and, the following year, changed its name from Kyosai to Yasuda.

Unlike other zaibatsu, which diversified into manufacturing, transportation, and natural resources as well as banking, Yasuda remained solely dedicated to finance. At this point, the Yasuda group consisted of the Yasuda Bank, the Yasuda Fire & Marine Insurance Company, Yasuda Mutual Life Insurance, and the new Yasuda Trust Company.

The 1930s was a tumultuous period for Japanese industry. Government regulation of the economy remained unsophisticated, and because many basic monetary functions were handled by the competing zaibatsu, much of the regulation that existed was uncoordinated. But despite frequent and, occasionally, serious recessions, Yasuda and the other zaibatsu grew larger and stronger.

This trend was checked, however, when a quasinational socialist military group rose to power. One of the goals of this group was decreasing the power of the zaibatsu. But by 1940, the wartime economy required the concentration of industry, and the zaibatsu were once again allowed to absorb smaller companies, in the name of economic efficiency. The Yasuda group, however, and Yasuda Trust in particular, avoided amalgamation throughout the war, although it did take over certain accounts from other institutions. As a powerful financial institution, Yasuda was nonetheless intimately involved in war finance.

Postwar Period of Growth

When the war ended in 1945, the American occupation authority dissolved the zaibatsu into thousands of smaller enterprises. Ties between the Yasuda companies were cut, and each was forced to change its name. The Yasuda Bank, the center of the group, became the Fuji Bank. In 1948, under new trust laws, Yasuda Trust was reincorporated as Chuo Trust & Banking, taking its name from the Chuo, or “central,” district of Tokyo, where it was headquartered.

Japan’s industrial organization laws were relaxed in 1952, and with the enactment of the Loan Trust Law, Chuo changed its name back to Yasuda. This law enabled Yasuda to tap a new, stable market for long-term beneficiary certificates of variable denominations. In this way, customers, mostly private individuals, provided the bank with additional capital for long-term industrial financing.

Using its trust and long- and short-term finance products, Yasuda forged close relationships with Japan’s largest industrial companies, including Hitachi, Nippon Steel, the Nissan Motor Company, and Marubeni, a general trading company once associated with Sumitomo. The companies of the former Yasuda group reestablished ties through cross-ownership of stock to form the new postwar Fuyo industrial group.

Yasuda adopted an extremely cautious approach to trust and asset management. Much of this caution was required by law, but Yasuda set out to build a reputation for conservative management. As a primary manager of funds for Japan’s largest and fastest growing companies, Yasuda benefited directly from the rapid expansion of Japan’s heavy industries during that country’s first period of industrial growth (1955-1970). As the bulk of the company’s income was spread-based, rather than fee-based, Yasuda grew at an exponential rate.

Such conservative management, however, made Yasuda a largely faceless institution, distinguished only by its smooth and predictable growth and its affiliation with the influential Fuyo group. Still, many of Yasuda’s competitors gained similar reputations.

Slower Growth in the 1970s and 1980s

The entire Japanese economy was profoundly affected by two events in the early 1970s. The first was the Nixon Administration’s decision in 1971 to abandon the Bretton-Woods system of currency valuation. This resulted in a sharp appreciation of the yen against the dollar and slowed Japanese export-led growth. The second was the OPEC oil embargo of 1973, which drastically raised production costs at all levels of the Japanese economy.

Whereas many less conservative financial institutions were seriously jeopardized by the effects of these crises, Yasuda’s growth was merely slowed. Though Yasuda was exposed to contracting sectors such as steel and shipbuilding, its investments were diversified enough that it was able to reorient itself to the new economic environment quickly. This lesson became institutional policy and was instrumental in avoiding a similar crisis during the second oil crisis, in 1979.

Yasuda recognized many years in advance that financial management opportunities in Japan were becoming saturated. Japan’s second period of industrial growth (1970-1985) flooded Japanese financial institutions with capital at the same time that it exhausted investment opportunities; Japanese investments were no longer competitive with foreign projects.

To effect a stable entry into foreign financial markets, Yasuda had established “intelligence-gathering” offices in major foreign markets as early as the 1960s. Often, these offices were jointly operated with fellow Fuyo members, or even competitors, such as Mitsui, Mitsubishi, and Sumitomo. When its clients began to investigate the establishment of foreign-registered subsidiaries, Yasuda was able to offer good intelligence and management services specifically tailored for Japanese companies in these markets.

A major obstacle to growth in Yasuda’s home market was government regulation. In response to an ongoing effort by the banking, trust, and securities industries, this regulation was gradually being relaxed. Much of this activity, however, was limited to the banking industry. Yasuda prepared for increased competition in Japan by establishing strengths in six distinct areas of long-term growth potential.

In the area of pension management, Yasuda took advantage of the trend in which the ratio of employees to pensioners, five to one in the late 1980s, was projected to fall to two and a half to one by the year 2020. With more than ¥2.2 trillion in pension fund assets in 1988, Yasuda had compiled the best investment record of any Japanese trust bank and was well positioned to maintain its position. In addition, because Japanese business was devoting less money to investment, despite record earnings, Japanese companies enjoyed greater liquidity than ever before. Yasuda responded by creating new corporate cash management services. Yasuda also established its expertise in real estate development, international finance and market services, and leadership in the Tokyo investment market.

Company Perspectives:

The Yasuda Trust and Banking Company, Limited, ranked among the world’s leading trust banks, was founded in 1925 and proudly celebrated its 70th anniversary in May 1995. As a trust bank, it maintains a unique position in the Japanese financial industry, handling asset and pension fund management, real estate brokerage and development, and stock transfer agency and other trustee-related business as well as commercial banking.

Difficulties in the 1990s

Like many Japanese financial institutions, Yasuda entered a prolonged period of declining fortunes in the early 1990s. Unsound lending practices in the late 1980s, the bursting of the Japanese economic bubble in late 1991, and increasing competition engendered by the ongoing deregulation of the Japanese financial industry conspired to halt Yasuda’s growth and to raise the possibility of Yasuda being taken over by a stronger rival. Net income steadily declined during the first three years of the decade from ¥52.4 billion in 1989 to ¥48.7 billion in 1990, to ¥34.2 billion in 1991, and to ¥21.5 billion in 1992.

In an effort to reverse this downslide, Yasuda begin in April 1992 a three-year four-goal plan for growth, called the New Century Plan Action II. The plan first sought to clarify and strengthen Yasuda’s core specialties, which were identified as asset management, pension and public fund management, and real estate and related development services. A second goal involved restructuring the company’s banking business to increase the volume of highly profitable floating-rate long-term loans; to do so, branches would be bolstered and the customer base broadened. The plan’s third goal aimed to enhance marketing operations to develop new financial instruments. The final goal sought to improve Yasuda’s risk management capabilities to cope with the rapidly changing environment that all Japanese financial institutions faced.

With the Japanese economy continuing in recession and the bank’s problem with nonperforming loans (mainly from the late 1980s) growing worse, Yasuda was only able to stay barely profitable during the plan period. Net income stood at ¥8.8 billion in 1993, then came in at ¥9.7 billion in 1994 and ¥9.3 billion in 1995. Under a new three-year plan launched in April 1995, Yasuda sought to address the nonperforming loans issue by reducing their balance, which by September 30, 1995 had reached 15.5 percent of all loans. The value of the nonperforming loans had reached ¥1.49 trillion (US $14.75 billion), the highest such figure among all of Japan’s trust and long-term credit banks.

During the 1996 fiscal year, Yasuda wrote off ¥202.53 billion (US $1.9 billion) in nonperforming loans and set aside another ¥238.74 billion (US $2.24 billion) in reserves for loan losses. As a result, the bank posted a net loss of ¥199.5 billion (US $1.88 billion) for the year. Yasuda also announced a restructuring plan in April 1996 that would involve some streamlining of personnel in an attempt to strengthen prospects for improved future performance.

As Japanese banking troubles reached a peak in the mid-1990s, many analysts predicted a period of consolidation in the industry, a development that would also tend to follow from the deregulatory moves of the government. For Yasuda, it was said that its affiliated city bank, Fuji Bank, was the most likely suitor. Also possible, however, was that Yasuda, by aggressively handling its portfolio of nonperforming loans, could recover on its own during the late 1990s.

Principal Subsidiaries

Yasuda Bank and Trust Company (U.S.A.); Yasuda Trust Europe Limited (U.K.); Yasuda Trust and Banking (Switzerland) Ltd.; Yasuda Trust & Banking (Luxembourg) S.A.; YTB Financial Futures (Singapore) Pte. Ltd.; Yasuda Trust Asia Pacific Limited (Hong Kong); Yasuda Trust Australia, Limited; YTB Finance (Aruba) A.E.C.; YTB Finance (Curacao) N.V. (Netherlands Antilles).