The Journal The Authority on Global Business in Japan

COVER STORY | FINANCE

May 2014
Oki Matsumoto: Monex Group, Inc.
Creating a financial company for the future
By Geoff Botting

Wall Street investment banks have become the stuff of legend; places where “masters of the universe” routinely move massive amounts of money around the globe. The banks are also highly coveted by young and fiercely ambitious university graduates.

But in Japan in the 1980s, their name recognition was close to zero, even among job-seeking grads, recalled Oki Matsumoto, CEO of Monex Group, Inc., an online brokerage based in Tokyo but with group companies and subsidiaries around the world.

“When I joined Salomon, my friends at university asked me, ‘Do you like skiing that much?’” Matsumoto laughed. “Nobody around me knew who Salomon Brothers was,” he explained.

Mistaking one of the world’s leading investment banks for a French sports equipment maker was par for the course back then. Similarly, joining one by a graduate of The University of Tokyo—easily Japan’s most prestigious university—was considered a rather unconventional move.

But that’s exactly what Matsumoto did. “I thought that if I went into some other industry, I might get bored,” said Matsumoto, who studied law and admitted that he didn’t give his career much thought until graduation. “In the financial industry, a person faces good days and bad days, so I didn’t think it would be boring.”

Indeed, Matsumoto’s early career was marked by several groundbreaking events. When Salomon hired him in 1987, he was among the first group of Japanese recruited directly out of a Japanese university by a Wall Street firm.

After three years at Salomon, he went to the Goldman Sachs Group, Inc. This was also a notable move as, at the time, job-hunting was extremely rare among Japanese white-collar workers, particularly ones who had barely begun their careers. In 1994 at Goldman, Matsumoto became a partner, “the youngest ever in Goldman’s history,” he said.

Then, in 1998, he encountered something that would change his career forever: the internet. “In those days, the internet was very loose and slow, and had a pretty bad infrastructure. But I learned the concept behind it, and it amazed me.”

His awe translated into action. Impressed by the internet’s apparent potential, Matsumoto decided to leave his position at Goldman to strike out on his own. His plan was revolutionary for that era—to create an online brokerage. And thus began Monex, which today claims to be the only broker with a physical presence in the world’s three largest economies: Japan, the United States, and China (Hong Kong office).

“I thought that the internet was going to be the way to do financial business. Lots of industries would be affected but especially finance, because in finance there is no physical delivery,” he said.

Subsequent events were to prove that hunch correct. E-commerce, although getting off to a slow start in Japan, eventually exploded.

What had made Matsumoto leave the security and opportunities of an investment bank to plunge into what seemed at the time a highly risky venture? Largely, it was due to his employer’s cool response to a grand idea he had.

“I proposed to Goldman Sachs, as I was a partner, to start a securities brokerage business using the internet to create direct access to retail people, who are the final risk takers,” he said.

His colleagues responded to the proposal by reeling off a list of objections. They told him he wasn’t particularly knowledgeable about the internet or equities, given that he was working in fixed-income at the time. Further, they pointed out, Goldman was in the institutional—not retail—business.

Meanwhile, his partnership contract with Goldman was coming up for renewal, and he realized he was in a now-or-never situation. “That was in the fall of 1998, and Japan was scheduled to fully liberalize stock brokerage commissions [the following year],” he said. “I wanted to start [the new company] by D-Day.”

Monex was founded by Matsumoto and three partners in 1999.

The early years were marked by some tough and unexpected frustrations. The problems weren’t due to the market or clients but, rather, to such Monex business partners as computer system vendors. “They didn’t treat us very nicely at the beginning,” Matsumoto recalled.

He learned the hard way that Japan’s business community took a dismissive view of small ventures like his.

Vendors and others were eager to serve Goldman at the drop of a hat. However, with Monex they behaved as if they were doing them a favor, and demanded money up front before delivering goods or services. “It was actually common, but coming from Goldman, I found it shocking. You had to pay first for everything,” he said.

And even when the cash was provided, there was no guarantee that Matsumoto or his colleagues would receive what they had asked for. “The system vendors would be nodding, but they didn’t really listen to us. They said they’d make ABC, but in the end they would only make A,” he explained.

“It was tough and it just kept happening. But it was a learning process,” he said, adding that ventures in Japan get a lot more respect now than before.

This learning process ended up paying rich dividends to Matsumoto and his colleagues.

Monex Group, based in Tokyo, expanded steadily. Today it comprises 12 offices worldwide with about 1,000 employees. The company aspires to empower traders and investors worldwide by utilizing the best technology, education, service, and financial professionalism to provide access to the top financial markets around the world.

The group’s core business is online brokerage, although it also engages in M&A advisory, debt and equity underwriting, and several other financial services.

One of its most recent endeavors is a B2B service, which utilizes Monex’s global network to transfer US stock to Japan.

The idea is to target executives and employees of Japan subsidiaries of US-based companies that have portfolios of US stocks in the United States. Through the human-resource departments of these companies, Monex proposes that it take over portfolios so that it can expertly handle any Japanese tax obligations.

“These executives and employees cannot carry over the losses from US stock, nor offset other financial instruments because they hold stocks in a foreign country. If they transfer stocks to Japan, they deserve the tax benefits and conveniences that are available to domestic stockholders, such as Japanese-language document preparation.

What makes this service unique? According to Matsumoto, this is the first Japanese online broker that has introduced desterilizing of mothballed US stock.

Matsumoto spoke at an ACCJ event, “Abenomics and the Japanese Markets,” on December 9 last year.

“I talked about the deflation mindset,” he recalled. “About how during deflationary periods, you don’t have to buy anything today; you buy it tomorrow, because you can get it cheaper. You don’t act today; you act tomorrow. You don’t hire today; you hire tomorrow.”

Once this mindset shifts among the Japanese people as a whole, he said, “The effects can be enormous.”

This concept, he told the audience, is at the core of Abenomics, the bold set of policies named after Prime Minister Shinzo Abe to boost the economy through fiscal and monetary stimulus and reform to generate some inflation and, eventually, sustainable growth.

“Some people asked me what will happen after Abenomics. I told them, ‘Hey, don’t worry.’ You shouldn’t worry today. You should enjoy today.”

Yet at the same time, Matsumoto has an eye firmly fixed on the future. When concocting the Monex name, he proposed changing the last letter of “money” to an “X”, the letter before “Y” in the alphabet, to symbolize being at the forefront.

“I wanted to create a financial company for the future, to provide a service for people in the next generation,” he said.

 

BottingDivider

Geoff Botting is a journalist and translator who has lived in Japan for 25 years.

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