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Japan trio lack global clout
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August 20, 1999: 10:52 a.m. ET
Mega-bank partners eschew global ambitions to protect their home turf
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LONDON (CNNfn) - The planned alliance among three of Japan's largest banks is essentially defensive and will have a limited impact on global financial markets, analysts said Friday.
Dai-Ichi Kangyo Bank (DKB), Fuji Bank and Industrial Bank of Japan (IBJ) announced a wide-ranging alliance Friday to create the world's largest bank through a joint holding company with assets of $1.3 trillion.
While the deal mirrors recent bank consolidation in Europe and North America, analysts said the focus was on preventing the erosion of their domestic business rather than providing the credentials to become global banking players.
The trio also are thought unlikely to try to recreate Japan Inc.'s former role as a dominant force in global capital markets. Japanese banks have all but pulled out of lending to companies overseas and underwriting bond issues to deal with problems at home.
Ten years ago Japan provided more than a third of all corporate loans worldwide. The business has been scaled back over the past five years as weakened balance sheets were unable to meet the wafer-thin margins which won business in the past.
Fuji, which is credited with having the most aggressive restructuring plan, and other Japanese banks have cut overseas staffing and downgraded offices to representative status.
No global ambitions
Recent mega-deals, such as Deutsche Bank's (FDBK) takeover of Bankers Trust and the merger of Citibank and Travelers Group to form Citigroup (C), have been driven by global ambitions.
Deutsche, Switzerland's UBS and Citigroup are the current global top three when ranked by assets, according to Euromoney, a leading London-based capital markets journal (see table). All aim to offer one-stop shops across the range of investment banking, retail and asset management services.
| Banking: The new global elite |
| Rank |
Bank |
Country |
Total assets ($B) |
| 1 |
DKB/Fuji/IBJ* |
Japan |
1,250.0 |
| 2 |
Deutsche Bank |
Germany |
735.0 |
| 3 |
UBS |
Switzerland |
684.5 |
| 4 |
Citigroup |
US |
668.6 |
| 5 |
Bank of America |
US |
617.7 |
| 6 |
HSBC Holdings |
UK |
475.6 |
| 7 |
Crédit Agricole |
France |
455.8 |
| 8 |
ICBC |
China |
391.2 |
| 9 |
Chase |
US |
365.9 |
| 10 |
Bank One |
US |
256.0 |
| (*)pro forma |
Data is for 1998 |
The Japanese deal is viewed as wholly different. "Overseas banks are eating their lunch. The only time that Japanese banks do anything radical is when they have a gun in their mouth, and the gun is being held by the likes of Citigroup and Merrill Lynch," said Simon Brady, publisher of Euromoney.
Japan's banking system has come close to collapse since the country's asset-price bubble burst in the early 1990s, sending the country into recession and running up 40 trillion yen in bad debts among the banks as companies went under.
Defending their turf
While the banking system attempts to rebuild with the help of huge government bail-outs, overseas banks have poured into the country in pursuit of the country's rich savings base at a time when the Japanese government has been forced to start deregulating the sector to avoid its complete collapse.
Citibank led the advance before its merger with Travelers and is the largest overseas player in Japan. Merrill Lynch (ML) followed with its purchase of the bankrupt Yamaichi Securities, formerly one of the country's four largest brokerages, and Goldman Sachs also has made huge inroads into the market.
With interest rates near zero, overseas banks have invested heavily to promote more attractive investment products in a country with one of the world's highest savings ratios.
Brady noted that 80 percent of Japan's retail savings were held by savers over the age of 60. This was the battleground which the three Japanese partners were seeking to defend rather than hammer on the doors of global corporate boardrooms.
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