The Japanese Financial Market And Its Big Four

The four major financial conglomerates which operate in Japan have always had immense control on Japanese financial market. The companies namely, Nomura, Yamichi, Daiwa and Nikko are involved in a number of securities related activities like trust sales and underwriting of corporate bonds. The way these financial giants operate shows that the recent restructuring of Japanese economy has been very successful.

Before the mid 1990s when the banking sector in Japan was not deregulated, these four companies had a loin's share in the investment market of Japan. A number of restrictions and regulations were imposed on the market of corporate bonds. The entire process of issue of these bonds was in the clutches of these four underwriters. When the early 1990s came, reforms were introduced and the situation of financial market on Japan began to change.

The Japanese banks were now allowed in the game in the name of subsidiaries. While they were allowed to enter the market of bond underwriting, equity related business still eluded them. The banks were able to bring sea change in the market even though they were participating only indirectly and that too in a limited manner. By the end of decade, a number of banks were in the field and the big four were feeling the heat of their presence.

Post 1998, the great bank merger frenzy reduced the number of banks that were involved in the sector but by this time, the picture had changed. The issues which were being underwritten by the big four had become similar to those which the other security companies were doing. Though the big four still carried the advantage of a higher average amount per issue.

As far as the fees of underwriting are concerned, they were slow to come down but they did come down. Between 1994 and 1998, the decline was not visible even though the bank subsidiaries had boosted the competition. Matusuo informs that it was by the coming of 1998, that a visible decline came in the underwriting fees for individual issues. It was more prominent in the issues which carried a higher credit rating.

Today these bank subsidiaries have a big share for themselves and the 'big four' are not as big as they were. It must be kept in mind that the 'big four' still carry a brand loyalty of their own. Moreover even though the bank subsidiaries have carved a market share for themselves, the impact that they have been able to make is still in a premature stage.

The game is not over for the 'big four' yet. They still have something that these bank subsidiaries do not, industry experience. If they are able to keep fees low yet dole out some great deals to clients, it is only the Japanese financial market who will be the ultimate beneficiary.