Japan banks roll out mega-merger plan to form largest bank
Yuka Obayashi

TOKYO, DEC 25: Three Japanese banks that will be merging to create the world's largest financial institution rolled out plans on Wednesday to create a world player and avoid the consolidation woes seen in other mega-mergers.

The banks, Industrial Bank of Japan Ltd (IBJ), Fuji Bank Ltd and Dai-Ichi Kangyo Bank Ltd (DKB), said they would hold equal stakes in a new holding company to be called Mizuho Holdings Inc. Mizuho is a Japanese word that refers to young rice plants.

"Because bank merger ratios are decided not only by share price but by asset quality, the fact that they'll be taking equal holdings means that none of the three has been hiding bad loans," said Warburg Dillon Read analyst Katsuhito Sasajima. He said this was likely to ease lingering fears about the health of Japan's financial system. The group will have assets of 140 trillion yen ($1.37 trillion), making it the biggest bank in the world and nearly twice the size of current industry leader Deutsche Bank AG.

Bank officials told a news conference they hope to cut costs by about 100 billion yen by the 2005/06 business year, a reduction of about 11 per cent from last year's levels. They also said they would be more aggressive in cutting jobs and closing branches. Industry analysts say that in previous mergers Japanese banks have been too slow to shut down excess branches, creating yet another drag on earnings.

The workforce now estimated at 35,000 will be cut by 7,000 over five years and 170 branches will be shut, the companies said. There was no mention of layoffs, which are still a rarity in Japan's corporate restructuring.Altogether, the giant financial group expects to post group net profits of 800 billion yen in 2005/06, representing a 12 per cent return on equity (ROE), against a net loss of 1.048 trillion yen for the year to March 1999.Wednesday's announcement puts flesh on the bones of the banks' initial statement in August that they planned gradually to integrate their operations by the spring of 2002.

Other major Japanese banks have also announced alliances as the industry goes through sweeping changes ushered in by hefty problem loans, overcapacity and deregulation. The banks hope their merged group will be a nimble global player in an increasingly concentrated industry. But the track record for Japanese banks in such situations has been mixed.

Analysts say it took the Bank of Tokyo-Mitsubishi, currently Japan's biggest bank, two years to pull its operations together and end the duplication and excess capacity it inherited.

Two other major Japanese banks, Sumitomo Bank and Sakura Bank, have also said they are aiming for a merger by April 2002 that would make them the second-biggest bank in the world with 99 trillion yen in assets.

Some industry analysts say the ranks of Japan's big banks, which once numbered 20, will eventually dwindle to four or five. Despite their mammoth size, the merged banking groups will still face difficulties in catching up to foreign rivals with superior financial strength and technology.

While Japanese banks have been struggling with huge problem loans following the collapse of the real estate bubble in the early 1990s, foreign banks have been making advances in investment, risk management and mergers.

The first step for the Japanese banks is to make sure they can hold on to a big chunk of the lucrative domestic market, which is fast opening to foreign competitors and new-comers under government deregulation steps. Mizuho is seen as a likely winner in the domestic retail business, where only a limited number of foreigners are participating.

Nasdaq Japan to make debut in June
TOKYO: Japan's growing ranks of capital hungry start-up firms have a new place to park their shares - Nasdaq Japan, a joint venture between a Japanese Internet investor and the US National Association of Securities Dealers.

Nasdaq Japan said it would start trading by the end of June as a sister version of the US Nasdaq exchange, aiming for an eventual 24-hour system with electronic links to the European and American Nasdaq markets. But it is expected to face tough competition from the Tokyo Stock Exchange's new Mothers market, which began trading on Wednesday. Mothers - short for Market of High Growth and Emerging Stocks - is also chasing the growth sector of high-tech firms at the heart of Japan's changing economy as the country emerges from its deep recession.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.