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Travelers Buys Into Japan Brokerage

June 1, 1998

TOKYO (AP) _ Travelers Group Inc. said Monday it will buy a 25 percent stake in Nikko Securities Co., the third-largest Japanese brokerage house, moving to take advantage of unprecedented opportunities in the region for foreign firms.

The American financial behomoth joins a growing number of foreign firms, including securities rival Merrill Lynch & Co., that are strengthening their position here with the Japanese government loosening regulations and scandals tarnishing the image of domestic brokers.

The deal comes less than a month after Travelers unveiled an $82 billion merger with Citicorp to create the world’s largest financial services company. The partnership with Nikko will enhance the global businesses of both companies.

``Our creating a partnership with Nikko will allow us to be more productive not only in this marketplace but all around the world,″ said Sanford Weill, chairman and chief executive officer of Travelers Group, said at a press conference in Tokyo.

New York-based Travelers will pay $1.6 billion to become Nikko’s biggest shareholder, taking over from top Japanese lender Bank of Tokyo-Mitsubishi Ltd. Nikko will buy a smaller stake in Travelers Group to solidify the broad-based tie-up.

The deal is one of the most aggressive moves to date by an American financial powerhouse in Japan in the midst of a major effort to liberalize the Japanese financial industry by 2001. The reforms, dubbed the ``Big Bang,″ are expected to open up a pool of personal financial assets worth an estimated $9 trillion.

A number of other big names on Wall Street have also expanded in Japan. In February, Merrill Lynch and Co. hired 2,100 former employees of the failed Yamaichi Securities Co. to staff 33 retail outlets nationwide. Fidelity Investments Co. has announced similar plans.

The foreign firms hope to generate big business by persuading Japanese consumers to shift the bulk of their assets from low-yielding savings accounts and by winning suppport from the public because of the financial problems and other scandals plaguing domestic companies.

As part of their strategic alliance, Travelers and Nikko plan to link their worldwide securities sales and trading businesses. They will also set up a jointly-owned Tokyo-based securities company with working capital of more than 140 billion yen ($1 billion).

The Japanese venture, to be called Nikko Salomon Smith Barney Ltd., will incorporate the investment banking, consumer product and research operations of Nikko Securities, one of Japan’s ``Big Three″ brokers.

Masashi Kaneko, president of Nikko Securities, said that he does not expect the tie-up will trigger a drastic job cuts or branch closures in the immediate future.

The venture will be headed by Yuji Shirakawa, currently president of Nikko Research Center. Toshiharu Kojima, chief executive of Salomon Smith Barney in Japan, will become co-chief executive of the venture, along with a Nikko Securities official.

Investors in Tokyo reacted positively to the news, pushing up Nikko Securities shares 11 percent to close at 482 yen ($3.46). Travelers shares were up $1.063 at $62.313 in afternoon trading on the New York Stock Exchange.

Separately, the Tokyo Stock Exchange launched an investigation Monday over possible insider trading involving Nikko shares after the price of its stock jumped Friday, an exchange official said.

Nikko shares closed at 436 yen ($3.16) Friday, up 4.8 percent from Thursday’s close. At one point during trading Friday, the shares rose as much as 10 percent. A total of 8.59 million Nikko shares were traded, about 5.9 times the amount traded on Thursday.

Both Travelers and Nikko denied any involvement in insider trading.

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