Japan Bank Deal Would Create Global Power : Finance: Mitsubishi, Bank of Tokyo announce agreement to merge. Analysts see little impact on California scene.
Two elite Japanese financial institutions, Mitsubishi Bank Ltd. and Bank of Tokyo Ltd., announced Tuesday that they have agreed to merge into the world’s largest bank--a behemoth more than three times the size of Citicorp, the largest U.S. competitor.
The sheer size of the merged enterprise, which would own assets of more than $814 billion, underscores the vastness of Japan’s banking network and promises to bring a powerful new competitor to the international banking scene.
Despite recent woes in its banking system, Japan still claims nine of the world’s 10 biggest banks. The new venture brings together two of the nation’s healthier ones and combines Mitsubishi’s strong domestic presence with Bank of Tokyo’s international expertise.
The new entity would displace Japan’s Sumitomo Bank, with current assets reported at $601 billion, as the world’s largest.
“In the global turmoil half a century after World War II, a new vision for banking is necessary,” Tsuneo Wakai, president of Mitsubishi Bank, said at a news conference. “I think that Mitsubishi Bank and Bank of Tokyo have something in common and we can pursue that ideal together.”
The brunt of the merger would be felt in Japan, where it is expected to widen the gap between strong and weak banks and accelerate a financial industry restructuring sparked by the collapse of Japan’s late-1980s “bubble economy.” Already, there has been a spate of mergers and buyouts among smaller financial institutions laden with billions of dollars in debt from bad real estate investments and other non-performing loans.
Shoichiro Toyoda, chairman of the influential Federation of Economic Organizations ( Keidanren ), told reporters he expects the merger to “help stabilize the nation’s financial system and revitalize economic activity.”
Some predicted that the world would see a much more aggressive player after the two Japanese giants weathered the internal turmoil sure to accompany the marriage of two large corporate empires that together would employ 24,000 people in 472 domestic and foreign offices.
“There will be some digestion problems, but give them three years for all the ironing out and they will be a formidable competitor,” predicted James McNaughton, a financial analyst and former State Department economist who spent a decade in Japan. “All of a sudden, what used to be a moderately sized Bank of Tokyo is enlarged with quite a few new muscles and the Mitsubishi name all over it. And it will be in there trying to outbid Bankers Trust and the other American and European banks.”
Takeo Takasu, general manager of the Los Angeles branch of Sanwa Bank Limited, the world’s fifth-largest bank, said the Mitsubishi-Bank of Tokyo marriage would create a “supercompetitor” in the global financial market.
Bank of Tokyo--owner of California’s Union Bank--has been expanding abroad, particularly in China and other fast-growing Asian economies. Mitsubishi Bank, noted for its strength within Japan, also owns Bank of California.
Analysts and competitors don’t expect major changes at either California bank, nor do they see the merger making serious inroads in California’s banking scene. While Japanese banks control 12.2% of all commercial bank assets in California, the combined market share of Union Bank and Bank of California is less than 3%, according to figures provided by Sanwa Bank and First Interstate Bancorp of Los Angeles.
“Globally, clearly they’re going to be a powerhouse, but within California we don’t see much of an impact,” said Shirley Hosoi, a senior vice president at First Interstate.
San Francisco-based Union Bank declined to comment on the merger. Bank of California, also based in San Francisco, told its employees that the details of the merger are still being worked out and urged them to “stay focused on serving our clients.”
The merger, which requires Japanese government approval, is expected to be implemented by April of next year.
Officials of Japan’s Fair Trade Commission said Tuesday that they don’t foresee any obstacles to the merger, Kyodo news agency reported. Finance Ministry officials also expressed support for the plan, Kyodo said.
Partly on the strength of rumors of the merger, which was announced after the close of trading, the 225-issue Nikkei stock index rose 585.48 points, or 3.64%, Tuesday to close at 16,681.73. The Tokyo Stock Exchange suspended trading of both banks’ shares soon after reports of the merger surfaced.
Mitsubishi Bank is one of the three core firms of the Mitsubishi group, along with Mitsubishi Heavy Industries Ltd. and Mitsubishi Corp. While strong domestically, its international operations are seen as too weak to compete effectively.
Bank of Tokyo has long specialized in foreign exchange dealings and has strong international operations. Its chairman is Toyoo Gyoten, a former vice finance minister well known in international finance.
Mitsubishi had operating profits of $1.46 billion in the six months ended Sept. 30, down 6.5% from the comparable period a year earlier. Bank of Tokyo posted operating profits of $1.04 billion, up 3.7%.
“The Bank of Tokyo has operated as a specialized foreign exchange bank for the past 50 years,” bank President Tasuku Takagaki said at a news conference. “Now we need a new partner through which we can expand our operations both quantitatively and qualitatively.”
Holley reported from Tokyo and Iritani reported from Los Angeles.
