The Japanese Are Banking on Los Angeles : And It Means You May Never Use An American Bank Again

IT’S ALMOST MIDNIGHT at the Utage bar on the edge of Los Angeles’ Koreatown. A middle-aged Japanese businessman, dour and grim in a conservative three-piece suit, stands up from his table and weaves his way through the crowds. A metallic-sounding recording begins to play over the sound system. The businessman moves to a microphone and suddenly, sweat pouring down his reddened face, he opens his mouth wide and belts out a syrupy love tune from back home, singing his heart out.

For the boys from the bank, the Utage--which means “party” in Japanese--is a refuge to relax, to pick up a microphone and sing, or, for $50, to flirt with a waitress, blondes from California, traditional Japanese girls from home. It is a bankers’ night on the town, Japanese style, in a town where the Japanese make themselves at home.

“I feel very comfortable in L.A.,” says Nobuyuki Tateno, a vice president of the downtown office of Dai-Ichi Kangyo Bank of California. “Many Japanese say Los Angeles is the 24th Ward of Tokyo (which is divided into 23 wards). We can have any kind of Japanese product or food here. In fact, sometimes we think the Japanese life here is better than at home.”

Spread like financial Jesuits around the globe, Japanese bankers are finding that there are few places where they feel more at ease than in Los Angeles, where Asian faces are as common as the bars, restaurants and shops that cater to them. Throughout most of the United States, Japan’s financial presence has been largely limited either to serving customers from back home or to the realm of high finance. But here in California, Japanese banks are making a strong effort to compete with, and surpass, California banks. The result is a significant change in how banking is conducted in Los Angeles, along with increasing numbers of Japanese businessmen settling in the Los Angeles area.

“When we first came to America, we did tend to look at New York. But now we see California has a more diversified economy; it’s growing. One hundred thousand people moving here every month,” says Hisao Kobayashi, president of Dai-Ichi Kangyo Bank, in his downtown office. “Even with all our money, we Japanese can’t extend credit everywhere from earth to moon. We must choose somewhere to stay and share the life of the customers. This is the place.”

Like Dai-Ichi, the world’s largest bank, most of Japan’s major financial institutions--eight of the top 12--have chosen to make California their “place.” The decision to opt for California over New York, the nation’s traditional banking center, stems from California’s long history of Japanese settlement and the state’s already dominant role as the U.S. center for Japanese trade and investment. More than 800 Japanese corporations now maintain operations in Southern California. No other place can compete for the right to serve as Tokyo’s 24th Ward.

The comparison invites argument, but, according to Richard Hanson, publisher of the highly respected Tokyo-based Japan Financial Report, the Japanese are here for reasons not unsimilar to why they went after Pearl Harbor: “It was close and they could reach it easily. And there were already a lot of Japanese there. It was the place where they were most at ease.”

It has been so easy, in fact, that Japanese banks have already captured a significant part of the California banking market with hardly any notice. Three of California’s 10 largest banks are now Japanese owned. And from a negligible position in 1980, the Japanese now hold roughly 13% of California’s banking business. Within a decade or two, predicts a top official at Los Angeles-based First Interstate Bank, that share could grow to as much as 30%.

Japan’s growing financial muscle in California reflects a broader shift in the nature of the relationship between the world’s two largest capitalist economies. For the last two decades Japanese corporations have seized one industry after another from American manufacturers. But now the soaring yen, new competitors such as Korea, and growing American protectionism have dampened Japan’s industrial market share. Inexorably, Japan’s manufacturers are being forced to withdraw or shift operations to other countries, including the United States.

Yet as the manufacturers fade, they leave behind a legacy of Japanese financial domination. If the manufacturers represented a successful invading army, bankers such as Dai-Ichi’s Kobayashi are the army of occupation. Long after all the Sony TVs and Toyotas have been replaced by Korean, Taiwanese or even American-made products, Japan’s financiers will have a major impact on business life, not least the availability of credit for millions of Californians.

“They’ve paid their dues and they are going to be a dominating force,” says Richard G. Kjeldsen, international economist at Security Pacific Bank. “The Japanese are here to stay.”

The banks have become too strong not to. Thirty years ago not one Japanese bank ranked among the world’s 50 largest. Today Japan boasts six of the world’s 10 largest banks, and a stock market richer than those of New York or London. And yet even with all that cash, all is not well with Japan’s financiers. As it is for manufacturers, tiny Japan is too expensive and too lacking in financial-growth potential. So the financiers too are shifting their assets overseas, particularly to growth areas such as California. In 1973 foreign loans accounted for a mere 6% of all Japanese lending; 11 years later they accounted for better than one-fifth. And since then most observers believe this capital flight has only accelerated.

“To put it in simplest terms, there are thousands of areas in the United States where you can build a hotel and do some marketing and you can develop it into a tourist area,” explains Yumi Kobayashi of James Sagen & Associates, a Menlo Park-based consulting firm that works with many large Japanese financial institutions. “There are no such unexploited areas in Japan; no unturned rocks.”

IT’S 6 P.M. ATDAI-ICHI’S downtown Los Angeles office, but the activity hasn’t begun to cease. Six p.m. PDT is morning in Tokyo, and that means phone calls back to the home office; the bank’s physical location is in Los Angeles but it operates on Tokyo time as well. In fact, the bank looks like a Tokyo bank. Virtually everyone is Japanese. The division of labor is also typically Japanese. The women answer phones, make copies, do the clerical chores. The men, all sharing desks in the large central room, check their computers, send wires, dial home.

This is why native Missourian David Proctor stands out from the scene. As he rises from his desk in the middle of the pit, he moves at a speed a couple of grades slower than his colleagues. But even the gaijin (non-Japanese) play by Japanese rules. Although traditional “banker’s hours” have long since passed, Proctor--tall, distinguished, in his mid-40s--isn’t going anywhere either.

“You don’t dare leave early,” he says. “People work long hours here. Let’s just say if you left you’d be conspicuous by your absence.”

Working isn’t easy. There are no eight-hour days, or even the possibility of having your own office. Uncomfortable working conditions, maybe. But not unfair, Proctor points out; no one has a private office except for bank President Kobayashi. And he moved into a private suite only when the bank ran out of room on the floor.

Despite the discomforts, Proctor is happy to have enlisted with the Japanese. After all, they have most of the money in the world these days, and, in banking, money is power. That means no American bank is ultimately safe from their grasp. At Dai-Ichi, executives talk about acquiring a Bank of America or Security Pacific with casual ease. It’s only because of politics, not due to a lack of money, that such takeovers haven’t happened: the Japanese suspect that American federal regulators simply wouldn’t permit them to acquire such large institutions.

All that is lacking at Dai-Ichi now is the ability to drum up American customers; most of Dai-Ichi’s business still comes from customers back home. That’s where Proctor sees his niche at the bank. “You can be a force here, you can make a real contribution,” he says. “You’re talking about a sleeping giant that’s now the largest financial power in the world. There’s a great future in working for the leaders.”

Raw power, however, isn’t the only reason California bankers join up with the Japanese. Some American executives are also attracted to the relatively paternalistic management style at the Japanese banks--paternalistic, that is, contrasted with the cut-throat environment characteristic of American banking. Take the experience of one former Wells Fargo executive, now at California First, the largest of California’s Japanese-owned banks and the state’s sixth-biggest bank. A week before Christmas two years ago, he and other members of the bank’s economic department were invited out to a “thank-you” lunch at a fancy San Francisco restaurant with Wells Fargo Chairman Carl E. Reichardt. The next day this manager--as well as much of the department--got a pink slip in his box. “What I thought was supposed to be a thank-you lunch,” the manager recalled, “turned out to be the last supper.”

Such an approach is inconceivable in a Japanese bank. When California First cut a few positions it was careful to do so through attrition. Instead of cutting operations to the bone in order to boost profits, Japanese bankers place more emphasis on developing long-term ties to customers.

Local job seekers aren’t the only ones to benefit from the new financiers of the 24th Ward. Many Japanese banks such as Mitsubishi have been focusing on such mundane activities as auto loans, credit cards and other forms of consumer credit. With their massive cash reserves and their willingness to accept lower profit margins, Japanese banks can offer lower interest rates and larger loans for consumers than their American counterparts.

“They are buying into the consumer’s life,” says Hank Koehn, for 15 years the head of Security Pacific’s futures research division. “Even when I was at Security Pacific the word was that if you wanted a cheap loan for a boat or a pool, you went to the Japanese.”

And yet, the gradual Japanizing of the state’s banking industry does not seem to bother the top levels of California’s banking industry. First Interstate’s Harold J. Meyerman, who runs the bank’s international and wholesale banking division, epitomizes the Anglo-American Establishment that has dominated world banking since the last century. Although fully aware of Japan’s growing financial muscle, Meyerman doubts that the Japanese will turn downtown Los Angeles into a giant branch of Tokyo’s Otemachi financial district. “We have the creativity; the stronger people, we have the services that people are attracted to,” Meyerman says. “I’m not so sure that the guy in Pasadena or Bakersfield is going to deal with a Japanese bank.”

Perhaps, but these statements have a chillingly familiar ring. Twenty years ago Detroit’s auto makers derided the ability and marketing savvy of their Japanese competitors. A decade later swaggering Silicon Valley executives spoke volumes on how the Japanese electronics giants lacked the “creativity” to make headway in the fast-moving semiconductor field. Koehn fears that California’s banks may be lulling themselves into a similarly false sense of security. “The local banks are underestimating the Japanese as financial competitors just as the manufacturing companies underestimated them in the industrial area,” says Koehn, now a private consultant. “When you look at all the money accumulating back in Japan, it’s pretty awesome. The Japanese see California as a separate nation and they’re targeting it in their gun sights.”

But trouble for California bankers may mean good times ahead for non-bankers. For one thing, Japanese banks provide a dose of strong competition at a time when merger-mania threatens to limit the number of large, full-service banks. This translates into better service and more financial alternatives for banking consumers. “The Japanese competition,” notes Bud Flach, Sunkist vice president for finance, “keeps everyone honest.”

And if the Japanese do end up dominating California banking, the overall impact on the local financial services industry--and the region--could prove positive. By focusing on California, the Japanese are turning Los Angeles, a financial backwater a decade ago, into the nation’s second leading banking center. As Pacific Basin trade soars, and New York’s deposit base continues to fade, Los Angeles may soon be able to challenge the East for banking supremacy.

“We are becoming a financial center, and what did it was trade,” notes Security Pacific economist Kjeldsen. “The force leading this was the Japanese. They have played a huge role in helping make Los Angeles a financial center.”

AS THE CLOCK MOVES toward midnight, the Utage bar is filled to its capacity. At the Dai-Ichi table, a polite argument arises over the high-pitched singing of a Japanese hostess. Is Los Angeles truly the 24th Ward? Can a Japanese find a home here, amid these gaijin ?

Nobuyuki Tateno already has found a home here, and it’s the best one that he’s ever had. Like many Japanese businessmen in Los Angeles, Tateno--along with his wife, Yayoi, and their three children--have grown accustomed to the style of life in California. Comfortable in a spacious tract house in Torrance, they express little desire to return to the concrete blocks of Tokyo.

“In Tokyo it felt like I was living in a prison,” Tateno recalls. “Everything was very small--only two rooms. The dining room sat next to the toilet. If we went back to Japan, I wonder how we could survive there with no garden, no trees, no birds. Our life is so much better here.”

Koichi Yoshimine, from Dai-Ichi’s San Francisco office, disagrees with Tateno. Yoshimine has grown weary of his American sojourn and is anxious to return to familiar surroundings, back where Dai-Ichi Kangyo is a household word. Where business relationships are nurtured for decades, over drinking bouts and golf games at $500 a head. “I feel very isolated here,” he complains: “We just don’t have the relationship with these Americans. We have a hard time doing business with people with whom we don’t have a relationship.”

A Japanese, he believes, can never be Japanese outside of the home islands. The rush, the crowds, the humid, rainy months, the comforting web of giri (obligations), of ancestors. That’s what makes a Japanese.

“We can’t stay here permanently,” Yoshimine maintains, sipping on his beer. “If I stay I fear I lose myself. I want to hold onto my national characteristics.”

And that’s the contradiction. The Japanese banking community has never been known for its ability to forge ties with foreigners. Yet money is the international language, and the Japanese have more of it than anyone else. Used to scrimping and saving on their resource-poor island, Japanese suddenly find everyone straining for a piece of their action.

“Back home we live modestly in a neighborhood with the policeman or supermarket workers, and then one day you wake up and find out that you own the world,” Yoshimine says. “Then everyone accuses you of doing something wrong. All we’re doing is working very hard with our nose to the ground. We don’t know what to do.”

Up until now Michio Yamada, a vice president at Dai-Ichi’s downtown Los Angeles office, has been conspicuous only by his silence. But as Yoshimine talks, Yamada drains his beer and waits his turn. Maybe, he says, it’s time for change. “We have to take a greater sense of leadership,” he says.

This question of “leadership” is a nagging one for a people who now--rather unexpectedly--find themselves on top of the world’s financial system. “We have always been following the leaders and now we are treated like the leaders. But we don’t feel like leaders; we’ve never done it before,” Yoshimine explains. “Maybe we’re not ready for leadership. It’s a very dangerous position to be in, but it’s here. Nothing else can be done.”