Japan's large private banking business is set for a bruising market share battle, with local lenders beefing up and foreign banks curbing their activities but unwilling to back off completely.

While it is early to say if the local lenders can prevail over foreign banks in the world's second-biggest private banking market, the stage is being set for niches to develop, with Japanese banks making strong inroads into the affluent segment and foreign banks consolidating their hold on the super-rich.

How the players fare in Japan will have a big bearing on their global wealth management ambitions as the country is home to more than 50 percent of all high net-worth individuals in Asia-Pacific and where $15 trillion of personal assets is held mostly in low-yielding deposits.

The potential of the private banking business is big in Japan, said Masahiko Murakami, president of Lombard Odier Darier Hentsch Trust (Japan), a unit of Geneva-based private bank Lombard Odier.

But foreign companies may be lacking in enthusiasm now because their clients are not feeling great after being hit hard by the credit crisis, Tokyo-based Murakami said.

Though their aggressive expansion effort seen until 2007 appears to have slowed, foreign private banks still have a sizeable overall presence in Japan. Occasionally, there are also some new high-profile entrants, such as Credit Suisse, which launched a private banking business in Japan in May.

Foreign private banks' strengths are their global presence and their expertise in special advisory services for the very wealthy, usually individuals with more than 1 billion yen in financial assets.

Ultra wealthy investors are looking for advisory beyond investments. They can stick to safe assets as they don't have to take risk in investments now, said Yutaka Aiyama, chairman of Japan Family Office Association.

They are also looking for something very niche, such as advice on how to send their children to international schools or send them to universities abroad. It looks like foreign private bankers have more advantage in this kind of field, Aiyama said.

WEALTH TRANSFER

Japanese banks, on the other hand, are benefiting from the fallout of global financial crisis. While they already possess the advantages of a larger distribution network and a well-set client base, the crisis has led to a shift from the sophisticated products offered by foreign banks toward their simpler products.

Japanese banks such as Mizuho Financial Group and Sumitomo Mitsui Financial Group are also seen strong in facilitating transfer of wealth between generations, an activity that has perked up over the past year as the cost of inheriting shares is typically lower when markets are weak.

Helping the wealthy buy property or sell their business is another specialty of the domestic banks.

There has been some shift to real estate from financial assets as land prices have come down, while rents have been stable in central Tokyo, said Takahiro Ueno, Mizuho's head of private banking. We are seeing growing interest in buying real estate since the start of the year.

Japan's high net-worth population, those with $1 million or more in assets excluding their primary residence, totaled 1.36 million people in 2008, down 9.9 percent from 1.51 million a year earlier, a Merrill Lynch/Capgemini survey in June found.

But Japan suffered a relatively mild drop compared with other centers in Asia, with Hong Kong declining 61.3 percent and India falling 31.6 percent.

Sensing a big opportunity, Japanese banks are making their moves by hiring staff and reorganizing.

Sumitomo Mitsui has hiked its private banking staff by 40 over the past two years to a total of around 100, the bank said in May. And Mizuho merged its private banking and retail banking divisions last year, enhancing its focus on wealth management.

Foreign private bankers have been aggressive but the trend may have reversed now, meaning Japanese banks are more offensive, while foreigners may be more defensive, said Hiroyuki Miyamoto, senior consultant at Nomura Research Institute.

(Editing by Muralikumar Anantharaman)

Japan