Lesser known taxes help Japanese trusted banks to take control of a niche profit market

When Honda Motor Co. stopped. using Sumitomo Mitsui Trust Bank Ltd. as their stock transfer representative last year, the automaker was hit with a termination tax of around ¥ 426 million, according to two people familiar with the case.

The resting fee – ¥2,000 ($ 19) per shareholder – is a lesser-known practice among Japan’s largest trusted banks when they lose a client in the shareholder record-keeping industry, multiple insiders say.

The fee is usually paid by the bank to which the client is transferring. Insiders say this arrangement keeps a profitable business in the hands of a few highly trusted banks as newcomers shrink at the expense. One outgoing client was told that the cost was a “business practice.”

The three largest trust banks in Japan, Sumitomo Mitsui Trust, Mitsubishi UFJ Trust and Banking Corp. and Mizuho Trust & Banking Co. Ltd., controls at least 97% of the market, according to an internal bank document.

Some executives at privately registered companies are expressing frustration about the practice, which they say reflects banks’ misuse of their huge power in corporate Japan.

It is not clear why bank bankruptcy fees are different in the same amounts. Taxes fluctuated until the late 1990s, when weak lenders were consolidating, said one of those familiar with the matter.

“It’s not right to pay £ 2,000 for doing nothing. Any way you look at it is a barrier to entry and breaking anti-trust laws, ”said one lead manufacturer. He and other sources declined to be identified as the information is not public.

Movement representatives keep records of company shareholders, process share payments and count votes at annual general meetings. The Mitsubishi UFJ Trust should levy the levy at Honda when it took over the automaker’s records of about 210,000 shareholders, according to the two who knew the case.

Honda said it could not comment on the content of contracts.

Sumitomo Mitsui Trust, Mitsubishi UFJ Trust and Mizuho Trust said they will raise administration fees when a client leaves. They all refused to comment on the size of the fees or on specific issues.

The Mizuho Trust said contracts varied from client to client, and that there were cases where it would consider the resting fee from a transfer deputy when negotiating a contract. They said the fees were appropriate and that his business complied with the law.

The Mitsubishi UFJ Trust said there was no legal issue with the fees as the guarantee banks had not agreed to them together.

A spokesman from the Japan Fair Trade Commission declined to comment.

A representative for the Financial Services Regulatory Agency (FSA) said: “Private sector contracts are the responsibility of all companies.”

The Trust’s banks came under scrutiny last year after the Sumitomo Mitsui Trust and the Mizuho Trust respectively revealed a widespread failure to count all valid votes at annual general meetings over the past two decades. Both have apologized and promised to review practices.

Banks do not always make breach fees in contracts, said one of the people familiar with the matter.

Mitsubishi UFJ Trust said that, in general, administration fees are decided after discussions with the client. The Mizuho Trust said there were cases where he defined the fees in contracts.

Another chief executive, at a midsize-listed company, said his company refused to pay when they switched movement agents years ago.

“There was no clause for specific breach fees in our contract but the bank asked for it, saying it was a business practice,” the executive said. “I told them it didn’t make sense. ”

His company never paid the fee and the bank stopped trying to collect it, he said.

For decades, the labor industry was largely shifting in terms of labor as stock certificates and other records were handled manually. But digitization has helped speed it up, making it more profitable, business people say.

The profit-making business of the Sumitomo Mitsui Trust, which includes two small subsidiaries, had a profit margin of 49% in the last financial year, compared to 39% for the bank as a whole, which according to regulatory filings.

At the Mitsubishi UFJ Trust, it was 60% for the industry – nearly twice the bank’s total margin of 31%. The Mizuho Trust will not bring a breakdown to the industry.

When a client moves, the banks only need to retrieve and forward their database records, according to the two officials, one of the people familiar with the case and another businessman.

While the size of the data depends on the number of shareholders a company has – some of Japan’s largest companies have 700,000 or more – the records are provided electronically by the Japan Security Depository , a common platform for stock movement.

Mitsubishi UFJ Trust said other data needed to be prepared and transferred, including share payment records.

“If the rest taxes cannot be reasonably explained and a barrier to new entrants, their use could run counter to anti-monopoly laws,” said Yasuo Daito, a lawyer who specializes in trust cases at Nozomi Sogo Lawyers at Law.

But if the services of larger banks are just better than the services of potential opponents, then breaking laws against monopoly would be just as likely, Daito said.

In 2012, investment relationship firm IR Japan Holdings became the first new market entrant in four decades. He now has a 1% share.

Japan’s IR said they will not raise bankruptcy fees. He declined to comment on the practice.