Japanese banks tie £500bn knot

BY RICHARD LLOYD PARRY in Tokyo and

PETER RODGERS in London

Mitsubishi Bank and Bank of Tokyo are to merge by April next year to create the world's biggest bank with more than £500bn assets, more than twice as large as any competitor in Europe and the United States.

The deal announced yesterday will combine Mitsubishi's strong domestic network with the smaller Bank of Tokyo's powerful international business.

Most of the mergers recently rumoured among Japanese banks would be to tackle weakness resulting from a disastrous property lending binge, but analysts said this deal was different because both banks were sound.

David Marshall, of the London credit rating agency IBCA, said: "Mitsubishi and BoT are two of the healthiest Japanese banks. They have avoided the worst of the debacle and maintained well above average asset quality."

The new organisation will have total assets of Y72,000bn, deposits of Y52,000bn and capital of Y2.9,000bn. In assets, it will be the equivalent of the two biggest banks in Britain and North America - HSBC and Citicorp - rolled together.

As The Banker league table shows, the top six banks in the world are all Japanese. The table was compiled at a higher dollar-yen exchange rate, but the rankings would not change at present rates.

Tsuneo Wakai, Mitsubishi president , said the terms of the agreement had yet to be finalised, and the two parties were also continuing to discuss the plan with the authorities.

He said he hoped the new entity, baptised Tokyo Mitsubishi Bank, would formally start operations by 1 April 1996, the start of the 1996-1997 fiscal year, "at the latest".

A leak of the news boosted the Tokyo stock market 585.48 to 16,681.73, and the Tokyo stock exchange suspended trading in shares in both companies ahead of the announcement.

BoT employs just over 5,000 staff and Mitsubishi 16,000, excluding subsidiaries. The total is a fifth of the number at Britain's biggest clearing banks.

Mr Marshall said the small numbers were because of the concentration of the Japanese population, which allows large banks to operate with few branches, the absence of cheque books in Japanese banking and the way the banks operate through affiliates they do not own, such as credit card companies.

The planned merger was being celebrated in Japan last night as the perfect omiai - a formal meeting between potential marriage partners.

BoT and Mitsubishi are rare among Japanese banks in having emerged from the puncturing of the "bubble economy" of the 1980s, when massive asset appreciation lured many institutions into risky lending, with relatively few bad loans.

BoT is a leading foreign exchange bank, with 362 overseas branches dealing in international financing, and 37 within Japan. Mitsubishi specialises in commercial financing, with 346 domestic branches.

The marriage will be the first since a 1992 overhaul of Japan's banking laws that enabled banks with differing operational status to merge. The two banks aim at forming a "universal bank" by linking Mitsubishi Bank's domestic strengths in corporate financing, and Bank of Tokyo's worldwide network.

The two banks will set up a joint committee to prepare for the merger, which is planned for October. When it is completed the Bank of Tokyo will be disbanded, and the merged bank will base itself in Mitsubishi's Tokyo headquarters. The last amalgamation of this kind took place between the Kyowa and Saitama banks in 1991. Analysts were predicting last night that other institutions might well follow suit.

The new bank will form the hub of the powerful Mitsubishi keiretsu - a combine of related companies, linked to one another by complex webs of cross-ownership.

The keiretsu function as giant industrial department stores, providing member companies with many essential services, and conveniently reducing the need to shop elsewhere.

Thus, having secured loans from the Mitsubishi Bank and purchased land through Mitsubishi Real Estate, the Mitsubishi keiretsu member will typically hire Mitsubishi Construction to build its new factory with materials from Mitsubishi Metal and Asahi Glass - another Mitsubishi company.

Machinery, lifts and air-conditioning will come from Mitsubishi Heavy Industries and Mitsubishi Electric, and trucks from Mitsubishi Motors.

The project will be covered by Tokyo Marine and Fire Insurance, the finished product will be sold through the Mitsubishi Corporation trading company, and at the launch party, guests will drink Kirin Beer, and soft drinks bottled by Chukyo Coca-Cola Bottling - all companies under the Mitsubishi umbrella. Fellow-companies often share resources in finance, research, marketing and personnel.

Tasuku Takagaki, Bank of Tokyo president, said that Mitsubishi was the "best choice" for his bank, which until now had been forced into alliances with regional banks in Japan to extend its domestic reach.

"We judged we needed to seek a new base to survive [beyond] the 21st century."

Comment, page 33

Capital $bn Assets $bn

Mitsubishi Bank/Bank of Tokyo 28.2 700

Sumitomo Bank 22.1 498

Sanwa Bank 19.6 496

Fuji Bank 19.3 507

Dai-Ichi Kangyo Bank 19.3 506

Sakura Bank 18.5 495

Mitsubishi Bank 17.9 459

Industrial & Commercial Bank of China 18.8 338

Crdit Agricole (France) 14.7 283

HSBC Holdings (UK, includes Midland) 14.6 305

Citicorp (US) 13.6 217

Source: The Banker, July 1994 (then current exchange rates)