Japanese businesses expanded their beachhead on Wall Street Thursday as Japan's biggest life insurance company agreed to buy a stake in the Shearson Lehman Bros. investment firm from American Express Co.
Nippon Life agreed in principle to pay $530 million for a 13% interest in Shearson, a major investment firm that accounted for nearly a third of American Express' revenue and about a quarter of its profit in 1986.
Analysts said the deal could aid both Shearson's ability to develop business in Japan and Wall Street's opinion of American Express stock.
American Express shares closed at $78.75, up 12.5 cents in New York Stock Exchange trading.
The agreement is subject to a number of conditions, including approval by American Express' directors and Japan's Ministry of Finance.
While some Japanese investors have bought billions of dollars worth of real estate and other business in the United States during the past few years, Japanese investment firms--some of the world's biggest banks and brokerages--have expanded their presence in U.S. financial markets.
"The (money) stock is here and it's going to get bigger," said Robert Brusca, chief economist for Nikko Securities Co. International of New York, the U.S. subsidiary of one of Japan's biggest investment firms.
If the Nippon deal is successful, Shearson will join other U.S. securities firms that have obtained Japanese partners, often as a means of obtaining more capital. Last year Goldman Sachs & Co. sold a 12.5% stake in the firm to Sumitomo Bank Ltd. of Japan for a capital infusion of $500 million.
Also last year, Kidder, Peabody & Co. considered a link with a Japanese firm before agreeing to sell an 80% stake to General Electric Co., and E. F. Hutton Group added to its board an executive of Sumitomo Life Insurance Co. of Japan, which is not related to Sumitomo Bank.
In addition to its planned stake in Shearson, a Nippon spokesman in Tokyo said, Nippon Life expects to set up a wholly owned investment unit, Nissei International America, in New York next month and subsidiaries in Canada, Singapore, the Cayman Islands and Jersey this year.
These moves are in line with Nippon's long-term strategy to put more emphasis on overseas investment management as opportunities at home are declining while the company's assets are growing.
The company is especially attracted by the scale and depth of U.S. money and credit markets and wants to establish a firm foothold in the United States, the spokesman added.
Despite their expansion here, the big Japanese firms have a limited role in the markets.
Nippon Life, established in 1889, itself invests an estimated $1 billion to $2 billion a year in foreign bonds, a major portion of that in the United States.
The firm had the equivalent of $89.9 billion in assets as of March 31, 1986. It was the largest Japanese life insurance firm in terms of assets, new policies issued annually and the world's largest in terms of policies in force.
Shearson Lehman is one of the top-performing units of American Express and one of Wall Street's most consistently profitable investment firms.
Shearson accounted for $4.6 billion of American Express' $14.6 billion in revenue during 1986. The brokerage and investment unit had a profit of $316 million, while American Express' overall profit last year was $1.25 billion.
It is expected that an alliance with Nippon would give Shearson entry into the increasingly important Tokyo securities market.
American Express said it is continuing to evaluate various courses of action of strategic importance to Shearson Lehman in addition to the possible investment by Nippon Life.
It said the options range from expanding Shearson's capacity to meet international competition, to broadening its access to capital.
"All the courses of action under study reflect the continuing integral role of Shearson Lehman in American Express' worldwide financial services strategy," the company said.