J.P. Morgan to Buy Stake in Sony's Online Bank Venture

Updated from 8:09 a.m. EST

J.P. Morgan(JPM) said Thursday it will take a stake in a new online banking venture being formed by Sony(SNE) in a rare move to break into the traditionally impenetrable Japanese banking industry.

The Wall Street institution is likely to buy roughly a 4% share in the new bank. The venture is also being backed by major Japanese bank Sakura Bank, which will take a 16% stake and provide physical access to accounts through its existing automated teller machine network.

The bank teams Sony's technical savvy with Sakura's knowledge of Japanese banking and J.P. Morgan's investment and customer service expertise.

The move for J.P. Morgan to invest in a Japanese bank is seen as rare, largely because the banking system in Japan has been closely guarded by the government, and only open to a select number of firms. Even Sony, a Japanese company but an outsider to the banking industry, is said to be treading lightly in order to enter the potentially lucrative business.

Sony hopes to launch the bank in early 2001, pending approval from the Japanese Financial Supervisory Agency.

Sony says it will invest 80% of the 37.5 billion yen, or about $354.9 million in capital for the startup, and could submit its application for a banking license as early as next week. J.P. Morgan would contribute roughly $14.2 million.

Shares of J.P. Morgan were marginally lower midday Thursday, down 11/16, or 0.5% at 132 9/16. Sony rose 14 1/8, or 6% at 269 9/16. (J.P. Morgan closed down 1 3/8, or 1%, at 131 7/8 while Sony closed up 12 7/16, or 5%, at 267 7/8).

Sony's announcement about the developments with its online bank plans came amid several other announcements Thursday including several key executive appointments, the formation of a media venture with Primedia centered on soap operas, formation of a new headquarters structure to accentuate its new businesses, and a joint investment with Philips to create a new digital microchip company, Trimedia Technologies. Sony also projected bullish sales for its anticipated U.S. release of PlayStation2, which will have Internet capabilities.

"Sony is one of the few consumer companies out there that are taking nearly all of their hardware endeavors and gearing them toward the web," said Jeff Pittsburgh, analyst at Pittsburgh Institutional in Great Neck, NY.

"With its movie and music divisions, and its hardware divisions, Sony is positioned to be a huge player in both content and delivery," he added. Pittsburgh rates Sony a buy, and his firm does not underwrite stock or debt.

Sony had originally wanted a bank to handle transactions for online sales of its equipment and services, but has expanded its ambitions toward loans, bill payments and other retail financial products. J.P. Morgan, a veteran in U.S. online private banking services, might be able to contribute an array of financial and operational expertise in Sony's venture.

Other nonbank Japanese companies are also making plays to try and enter the banking business.

Supermarket company Ito-Yokado is said to be negotiating with Japanese regulators that would let it handle settlements for business at its 7-Eleven (SVEV) convenience store chain, while Toyota Motor Corp. (TM) is working with a plan to try and launch a financial services site, Gazoo.

Softbank, a Japanese investment firm that has mostly focused on Internet and high-tech companies, is leading a consortium that is looking to purchase Nippon Credit Bank from the government.

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