The move, which gives SBC an important toe-hold in Tokyo ahead of Japan's Big Bang programme of financial reforms, helps LTCB recapitalise itself and will pair it with a heavyweight international investment banking partner. LTCB has one of the heaviest bad loan burdens of any Japanese bank, so was ill-equipped to take on the challenges of Big Bang on its own.
SBC and LTCB plan to merge their domestic Japanese securities operations into a company with capital of 60bn yen (pounds 311m), with the banks taking 3 per cent cross-shareholdings in each other. They also agreed to establish a joint-venture investment advisory company as well as fund management and private banking operations for retail investors.
SBC Warburg's chairman, Hans de Gier, said the group intended to "form the most creative, dynamic and client-focused team in Japan".
Luqman Arnold, SBC Warburg's Asia/Pacific chairman, added: "We are very serious about becoming a major domestic presence in Japan because we are really convinced that this Big Bang is for real.
"Building SBC's own business is not a realistic option if one wants to be a major player during and after the Big Bang."
The Big Bang is Prime Minister Ryutaro Hashimoto's programme to make Japanese markets free, fair and global by breaking down walls among banks, brokers and insurers and introducing more competition.
The new venture will be responsible for the Japanese investment banking of both companies world-wide, combining LTCB Securities with SBC's existing Japanese equity, interest rate, foreign exchange, derivatives and corporate finance operations.
LTCB and SBC will also set up an asset management firm, LTCB SBC Brinson, and Japan's first-ever private bank.
The financial side foresees LTCB raising about 200bn in capital. Of this, 130bn would be raised through preference shares and 70bn through subordinated debt. SBC Warburg will help LTCB raise the funds and SBC will hold about 50 per cent of the new LTCB preferred stock in its investment portfolio.
Among Swiss banks, SBC already has one of the best Japanese market positions, following its 1995 purchase of SG Warburg, which had a long-standing presence there. The move now consolidates that position.
John Leonard of Salomon Brothers said: "This makes a lot of sense. SBC Warburg has global strengths and wants to get into Japan. LTCB doesn't have the skills or the capital to compete globally but wants to stay in these business areas."
It is expected the tie-up will be the first of many before the distinctions between banks and brokers are eliminated by 2000. Broking commissions are due to be liberalised in two stages from next April.Reuse content