Seek to Cash In on Increased Flow of Investors’ Funds From Home : Japan Firms Expand Brokerage Activities on Wall Street

They are not yet pulling down the biggest merger-and-acquisition fees. They don’t have brokerage offices on every corner of Main Street, and their financial wizardry hasn’t yet been immortalized in slogans known to every TV viewer.

Not yet, at least. But Japanese firms have gained an important piece of the American securities business, and their share is growing all the time. “We’ve got to go where the business goes, and today that’s not only Tokyo but London and New York,” said Steven M. Looney, senior vice president of Nomura Securities International, the largest of the Japanese securities firms in the United States.

The growing presence of Japanese firms on Wall Street was illustrated most dramatically this week when Sumitomo Bank, the world’s third largest, announced its plans to buy as much as 12.5% of Goldman, Sachs & Co., the sixth-largest Wall Street investment banking house and the last of the major investment houses to remain independent. Sumitomo, which is also parent of Sumitomo Bank of California, will pay Goldman, Sachs $500 million for a non-voting stake that will help it learn more about U.S. investment banking and give it direct access to corporate America.

The proposed deal will give Goldman, Sachs an infusion of important new capital and, said Tokuyuki Ono, managing director of Sumitomo Bank in New York, “will allow us entry to this advanced market at a time when the financial markets are becoming truly global.”

Japanese securities firms have long had a presence in the United States, trading Japanese securities to a small group of American clients. But recently they have sought to greatly expand their activities to take advantage of an increased flow of Japanese investors’ dollars into the United States.

They have also sought to serve the needs of Japanese corporate clients that are doing more business in the United States and to help U.S. firms raise capital in Japan and forge strategic links to Japanese companies there.

Some observers predict that other Japanese firms, including perhaps the other largest Japanese banks, may follow Sumitomo’s example by buying minority stakes in U.S. investment banking concerns. “The barriers between commercial and investment banking are coming down in the United States quicker than in Japan, and these banks want to position themselves to take advantage of new business opportunities as they do,” said Yoshi Tsurumi, professor of international business at Baruch College in New York.

The Japanese presence on Wall Street is now most visible in four securities firms: Nomura, Daiwa Securities America, Nikko Securities International and Yamaichi International. They have been rapidly expanding their capital resources and the size of their staffs, in part by hiring from U.S. securities firms and government agencies.

The firms have done a booming business in government securities as Japanese demand for the bonds has soared. While the four firms sell stocks and bonds almost exclusively to institutional clients in the United States, they have stepped up those trading activities and are eager to expand their share of the lucrative investment banking business.

Retail securities business would require a large network of branches, “and somehow I can’t see us yet doing so well in Peoria,” said Paul H. Aron, vice chairman in the United States for Daiwa. His firm has increased its available capital to about $67 million from $20 million in 1980.

Such figures are dwarfed by the big U.S. firms’ capital resources; Goldman, Sachs, for example, has about $1.3 billion in available capital. But Nomura’s Looney asserts that such comparisons are misleading because multinational firms can move capital to meet overseas needs.

“If there’s a deal to be done, we can do a lot to accommodate it,” he said.

Nomura has expanded its staff to 325 from 250 in the past half-year and expects to grow to 600 within the next several years, Looney said. The Japanese firms’ pattern of hiring some Americans was evident in his own enlistment from the A. G. Becker Paribas investment house seven months ago and the recent hiring of John Niehenky, who was a deputy assistant secretary of the U.S. Treasury.

Each of the “Big Four” Japanese-based securities firms has applied to the Federal Reserve Board to become a primary dealer in government securities--a privileged status, reserved for the biggest banks and investment banks, that enables them to deal directly with the agency.

Success in Some Areas

The Japanese firms can point to their success in some investment banking activities.

Nomura was investment banker to Dow Chemical in 1984 when the company purchased a majority share in Funai, a Japanese pharmaceutical firm. Last year, the Japanese Kirin Brewery bought a $5-million stake in a U.S. high-tech firm, Biotech Plant Genetics, then licensed one of its products.

The firm also has raised $37 million from U.S. institutional investors toward a venture-capital fund that purchases stakes in growing Japanese high-tech companies.

Tsurumi said a flood of capital from Japanese pension funds is another incentive for Japanese firms to expand their securities activities in the United States. The Japanese government has increased the flow by allowing pension funds to direct an ever-greater share of their assets overseas; only last week, the maximum allowable percentage of overseas investments was raised to 30% from 25%.

“It will certainly continue to go higher,” Tsurumi said.