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Sumo-sized bank created
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August 20, 1999: 6:47 a.m. ET
IBJ, Dai-Ichi Kangyo and Fuji Bank to form $1.3 trillion bank colossus
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LONDON (CNNfn) - Three Japanese banks said Friday they're getting together to form the world's biggest banking group, with assets totaling $1.3 trillion.
Industrial Bank of Japan, Dai-Ichi Kangyo and Fuji Bank will form a broad alliance that will rework the structure of Japan's bank industry. They are adopting a three-pronged approach, creating a joint holding company with three units specializing in investment banking, retail banking and asset management.
The deal will be implemented over the next two years.
The new combination will dwarf current world leader Deutsche Bank which has assets of just $735 billion. The as-yet-unnamed new entity will have about 700 branches and employ 35,000 people.
Stocks in the three banks were suspended Friday, having run up almost 12 percent in late Thursday trading as the first reports of a deal were published. The spillover impact into the rest of the financial sector was profound. Analysts said the huge deal would force the hand of rivals, and more deals lie ahead.
"Undoubtedly, this will push other banks together. All the banks, particularly Tokyo-Mitsubishi and Sumitomo, which will be overtaken by this merger, will have to reassess their positions," Russell Harrop, Japanese investment manager at Hill Samuel Asset Management told CNNfn.com.
In a moribund Japanese stock market, financial stocks provided the top 20 percentage gainers in Friday's session with several bank stocks rising as much as 20 percent.
The deal pleased Japanese financial regulators, keen to see the battered banking system shored up.
"We would like to give (legal) support so that the alliance is successful," according to Hakuo Yanagisawa, chairman of Japan's Financial Revitalization Commission.
A sluggish economy, intense competition and overcapacity have meant wafer-thin lending margins and enormous bad debt problems for Japanese banks in recent years. The three banks that are joining forces were part of a multi-billion dollar bailout of the sector by the government earlier this year.
Consolidation is seen as the course to improved profitability.
"The bigger you are the more products you can offer," commented Hill Samuel's Harrop, "there will be massive economies of scale." He said customers "now have to deal with this bank, it's so big."
The structure of the deal was also welcomed, because the new grouping will be Japan's number one in all three businesses. "Historically, Japanese banks have been strong in one area but weak in another," according to Harrop.
The banks will form a joint holding company by autumn next year, and integrate their operations by the spring of 2002.
Technology spending is a key area for Japanese banks, and the sheer scale of the new entity will mean it can spend far more than its nearest competitors on new IT systems.
"This will make us the only financial group in Japan that can match American banks in IT investments," said IBJ's president Masao Nishimura.
As part of its cost-cutting measure the new company plans to shed 6,000 jobs and close 150 branches over the next five years, resulting in savings of 100 billion yen ($900 million).
-- from staff and wire reports
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