Noriyuki Morimoto's Blog
Unbundling Trust Banks
Mar 21, 2017
The trust bank is a business structure unique to Japan which bundles banking and trust businesses. Recently there was news that the Japan Financial Services Agency (JFSA) is considering unbundling trust banks. Although the information has not been verified, it can be naturally expected from the ongoing trends of financial administration.
Trust banks provide a vast range of functions, including many non-financial roles such as real estate-related activities. The original social function of a trust itself is non-financial. Needless to say, bundling of these businesses had a historical background and rationale. In Japan’s period of high economic growth, trust banks played a crucial role as a major provider of long-term financing.
However, in the current social and economic environment, the significance of trust banks has to be reconsidered. If the bundling had been for the benefit of clients, there is no reason to limit the roles to trust banks, and other entities such as banks should be able to engage in the same businesses. If it had been for the trust banks’ benefit, there is no reason to support their existence. So in any case the structure of trust banks is bound to disappear.
It is necessary first to completely unbundle the functions of trust banks, and then to consider how to rebundle them from the users’ perspective.
Last year, Mizuho Financial Group drastically reorganized its investment and management businesses into a new company called Asset Management One, which is directly held by the holding company. As a result, Mizuho Trust Bank, which has already discontinued many of its banking functions, was separated from its core asset management business, being virtually dismantled. It is a matter of time that it would fully withdraw from the banking business to convert to a specialized trust firm.
The unbundling of financial functions lead to the dismantling of financial institutions, which immediately triggers rebundling from the clients’ perspective. Thus dismantled financial institutions are reorganized into a group of subsidiaries under a holding company. Against this backdrop, the JFSA is ordering megabank groups to conduct strict management of internal conflicts of interest.
While Mizuho Financial Group leads this movement, the other two megabank groups are likely to be seriously considering how to turn to the same direction. It is especially worth watching the two groups with trust banks, namely Sumitomo Mitsui Trust Holdings and Resona Holdings. Now, how will the two groups be dismantled and reorganized?
Chief Executive Officer, HC Asset Management Co.,Ltd.
Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (Tokyo Office) in 1990, where he was Director & Consultant for 13 years. His responsibilities also included Benefit consulting and Financial Services consulting. Prior to joining Watson Wyatt, he was responsible for foreign fixed income investment, asset allocation and investment strategy at Mitsui Life Insurance Co., where he managed assets for the company’s variable life products and group annuities as a fund manager. He spent 2 and half years in London managing fixed income assets. He started his investment career as Japanese equity analyst at Mitsui Life in 1983. Bachelor of Arts (Philosophy), University of Tokyo (1981)