ZURICH/TOKYO (Reuters) - UBS signed a joint venture deal with Sumitomo Mitsui Trust on Friday, aiming to crack a Japanese wealth management market where it has struggled to grow over the last 15 years.
The deal, signed by the banks’ CEOs in Zurich, will create a venture majority-owned by UBS that will expand the services both firms can offer their wealthy and ultra-wealthy customers.
It makes the Swiss bank the latest foreign asset manager to target Japan’s roughly $17 trillion in household assets.
Looking to make further inroads in the country, where it holds a securities but not a banking license, limiting the services it can offer, the world’s largest wealth manager said partnering with an established local bank would help grow its flagship business in one of the biggest wealth markets.
“We would rather own 51 percent of something that is big than 100 percent of something that is smaller,” UBS Global Wealth Management Co-President Martin Blessing told Reuters.
“We expect this business to grow and to grow faster than if we did it alone.”
Japan, the world’s third-largest economy, has long been a target for foreign asset managers, given its relatively high savings rate and number of wealthy individuals. At the end of 2018, personal financial assets totalled 1,830 trillion yen ($17 trillion), according to the Bank of Japan.
But foreign banks have struggled to establish a foothold, with several large international players pulling out of the business for lack of scale.
UBS currently manages over $20 billion for wealthy clients in Japan, Blessing said, a small fraction of the market. Its chief executive believes the business can be doubled over the next five years through the deal, he told newspaper Handelszeitung.
A substantial portion of Sumitomo Mitsui Trust’s 285 trillion yen of assets under custody hail from wealthy customers who will be referred to the new company, UBS’ Japanese country head said in a memo on Thursday.
UBS, Switzerland’s biggest bank, has recently faced stalled earnings in its core business managing more than $2.4 trillion for the world’s rich as clients stock up on cash and shy away from trading amid geopolitical uncertainty.
It is now looking to tie-ups with local players to support the business’ global growth, using the Japanese venture as a “testing ground” for other possible partnerships.
“(We want to see) whether this kind of setup can help us to succeed in markets where we have a certain presence but where our domestic share compared to the local competitors is still relatively small,” Blessing said.
The deal between UBS and the Japanese trust bank should help both boost business with existing clients and attract new customers, they said, with UBS clients gaining access to the Japanese bank’s real estate and trust services, while Sumitomo Trust clients gain access to UBS’ wealth management services.
The two firms will begin referring clients to each other by the end of the year and aim to establish the new company by 2021, they said in a joint statement.
($1 = 108.3900 yen)
Reporting by Brenna Hughes Neghaiwi in Zurich and Takashi Umekawa in Tokyo; Editing by Mark Potter and Christopher Cushing