| TOKYO -- The Japanese banking industry is
consolidating at an unexpectedly quick pace with implications that reach far beyond the
financial sector. The news Thursday that Sumitomo Bank, widely regarded as one of
Japan's stronger banks, and Sakura Bank, one of the weaker of the big banks, are forming
an alliance that will lead to a merger in two years came just a week after the Asahi Bank
and the Tokai Bank accelerated plans to combine.
A Sumitomo-Sakura merger would create a bank with about $864 billion in assets and a
roster of some of the most powerful corporate clients in Japan, such as NEC Corp. and the
Matsushita Industrial Electric Corp.
It would rank third in size only to the pending combination of competitors Dai-Ichi
Kangyo Bank Ltd., Fuji Bank Ltd. and Industrial Bank of Japan Ltd., which would have about
$1.3 trillion in assets, and the current leader, Deutsche Bank AG of Germany, which has
about $866 billion in assets.
Banking industry analysts said that a combined Sumitomo-Sakura would be a strong force
in Japanese retail banking and much better equipped to invest in information-technology to
reduce costs and provide online banking and trading services.
"We firmly believe that the integration of Sakura and Sumitomo, expected by autumn
2000, will mark the birth of Japan's future star mega bank," James Fiorillo, a senior
banking analyst at ING Barings in Tokyo wrote in a report to investors.
He cautioned, however, the speed of consolidation taking place here might mean that
some deals come apart and that merged banks will probably overestimate the savings and
profits they can achieve.
At a news conference Thursday evening, executives of Sumitomo and Sakura said
intensified competition in the global banking business, greater choice for consumers and
the investment required for up-to-date information technology were among the reasons
behind their decision to merge.
They promised to eliminate a total of 6,300 jobs, close 151 domestic and 32
international branches and clear their books of problem loans by the time they combine.
The merged bank's core business will be consumer and middle-market banking, and it will
retain connections to major corporations and municipalities.
The deal means that since the Japanese financial system slipped into crisis with the
failure of the Hokkaido Takushoku Bank in November 1997, the number of big banks has begun
to dwindle from 20 to 15 -- and of the remaining banks, two have been nationalized by the
government.
"I had not imagined that it would progress in such a quick manner as this,"
said Finance Minister Kiichi Miyazawa, who, in the midst of the furor over Hokkaido's
demise, had declared that the 19 remaining big banks were the right number for Japan.
Not only does that signal that the far-reaching overhaul of the banking system that the
government promised when it plowed $7.5 trillion yen in public money into the major banks
is occurring, it also suggests more wide-reaching reorganization is ahead for the
corporations that are their clients.
"The implications for industrial Japan are huge," said Kathy Matsui, chief
strategist at Goldman Sachs (Japan) Ltd.
Many of the banks that are joining forces share customers and hold the same stocks in
their equity portfolios. As a combined entity, they will have more leverage and incentive
to push their clients to reform.
"I don't think banks will start pulling credit lines or rush to sell their
cross-shareholdings," said Ms. Matsui, referring to the practice in which banks hold
shares in their borrowers. "But if their aim in creating these mega-banks is better
profitability and competitiveness, that should lead to better credit allocation and a more
pro-active management of their investment portfolios."
Takashi Imai, chairman of Nippon Steel and the head of Japan's business lobby, the
Keidanren, recently said one reason the steel industry here has not consolidated was the
diversity of primary banking relationships among steelmakers. As banks merge, more
companies will share the same bankers, making it easier to negotiate debt restructuring
and the like.
Similarly, merged banks will suddenly find themselves holding much bigger stakes in
faltering companies, increasing the pressure on them to either reduce their exposure or
become more actively involved in promoting restructuring. After Dai-Ichi Kangyo, the
Industrial Bank of Japan and Fuji Bank complete their merger, for example, they will hold
12.4 percent of NSK Ltd., a vast ball-bearing and machine parts manufacturer, and 10.5
percent of Nissan Motor Co., neither of them attractive investments.
In their statement, Sakura and Sumitomo said they would reduce their
cross-shareholdings with customers "as much as possible," adding, however, that
they would seek customers' approval first.
The power of multi-bank pressure can be seen in the partnership between Nissan and
Renault SA, the French car maker that acquired a 36.8 percent stake in its Japanese rival
earlier this year. Although that deal preceded the three-way bank merger deal, Fuji and
the Industrial Bank jointly prodded Nissan to seek capital from a foreign partner, saying
they could offer it no more credit.
"The relationship between banks and the corporate sector should change
rapidly" as a result of bank mergers, said Setsuko Akiba, a banking analyst at
Deutsche Securities in Tokyo. "The banks will think about how to make profits from
each client, and the clients will consider which banks can provide the most value-added
services."
In Japan, a Sakura-Sumitomo tie was greeted with surprise partly because it would cross
the boundaries of two of Japan's big industrial clusters, or keiretsu, which is highly
unusual. Sumitomo, with its roots in Osaka, is the main bank for the Sumitomo group of
companies, which include NEC and Sumitomo Chemical, while Sakura Bank, based in Tokyo, is
the main bank for companies like Toshiba and Toyota, affiliated with the Mitsui group. |
