The Yasuda Trust and Banking Company, Ltd.
The Yasuda Trust and Banking Company, Ltd.
Assets: ¥10.62 trillion (US$84.97 billion)
Stock Index: Tokyo Osaka
The Yasuda Trust & Banking Company is one of only 16 Japanese financial institutions licensed to engage both in banking and in trust management. The regulatory standards for such trust banks are more stringent, requiring these institutions to maintain higher reserves. 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.
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 were 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 quasi-national socialist military group rose to power. One of the goals of this group was decreasing the power of the zaibatsu. But by 1940, the war-time 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.
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 re-established 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 benefitted 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.
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.
While 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 re-orient 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 it exhausted investment opportunities; Japanese investments were no longer competitive with foreign projects.
In order 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. Today Yasuda operates branches or agencies in Hong Kong, London, Los Angeles, New York, and Singapore, in addition to 13 representative offices on five continents.
A major obstacle to further growth in Yasuda’s home market is government regulation. In response to an ongoing effort by the banking, trust, and securities industries, this regulation is gradually being relaxed, and may result in several company consolidations. Much of this activity, however, has been limited to the banking industry. Yasuda has 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 takes advantage of the trend in which the ratio of employees to pensioners, now five to one, will 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 has compiled the best investment record of any Japanese trust bank, and is well positioned to maintain its position. In addition, because Japanese business is devoting less money to investment, despite record earnings, Japanese companies enjoy greater liquidity than ever before. Yasuda has responded by creating new corporate cash management services. Yasuda has also established its expertise in real estate development, international finance and market services, and leadership in the Tokyo investment market.
Much of the company’s preparation for deregulation and world-wide expansion results from a decidedly consensus-oriented management board. This board is presided over by Yoshio Yamaguchi, chairman, and Fujio Takayama, president and CEO since 1985. In keeping with company’s reputation for low-key, thoroughly investigated business decisions, neither may be considered particularly eccentric or revolutionary in style or character. Any deviation from this tradition is highly unlikely. Yasuda, however, must adapt to a new environment requiring maximum efficiency and diversity in investment options. The days when it could simply manage the assets of its spectacularly-performing clients are drawing to an end.
Yasuda Trust and Finance (H.K.) Ltd.; Yasuda Trust Europe Ltd.; Yasuda Trust Finance (Switzerland) Ltd.; Yasuuda Trust Australia, Ltd.; YTB Financial Futures (Singapore) Pte. Ltd.; Yasuda Bank and Trust Co. (U.S.A.); Yasuda Trust and Banking (Luxembourg) S.A.