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Japanese Banks Agree to Merge into World’s Largest

March 29, 1995

TOKYO (AP) _ In a marriage that would create the world’s largest bank, Mitsubishi Bank and the Bank of Tokyo have agreed to merge next year.

The merger announced Tuesday night marks an aggressive attempt by the two banks to compete internationally with more profitable rivals in the United States and Europe.

Japanese banks, long protected by a cushion of friendly government regulations, dominate the world top 10 rankings in assets and deposits. But they have increasingly lost out to aggressive competitors abroad in newer areas such as derivatives trading.

``In international markets, our competitors are no longer just Japanese banks,″ said Bank of Tokyo president Tasaku Takagaki. ``(Mitsubishi) has a strong base that can fill out the places where we are lacking.″

Mitsubishi Bank, at the nucleus of the loosely linked Mitsubishi group of companies, has a strong base in domestic banking in Japan, while the Bank of Tokyo has been an international powerhouse since the days when it was the only bank in Japan allowed to deal in foreign exchange.

Mitsubishi Bank president Tsuneo Wakai, while cautioning that specifics still need to be worked out, said the banks want to merge by April 1996. The new bank’s name will probably be Tokyo Mitsubishi Bank, he added.

Terms of the deal were not disclosed, and it was not clear what percentage of the merged bank would be allotted to current shareholders of each partner.

In a meeting Wednesday with the presidents of the two banks, Finance Minister Masayoshi Takemura said he will approve the merger, Kyodo News Service reported. A Finance Ministry spokesman would not comment on the report.

If the merger goes through, the new bank would have total assets of 72.79 trillion yen ($814 billion) and deposits of 52.65 trillion yen ($589 billion).

Analysts praised the merger as a good match. Neither bank suffers from the mountains of bad debt that have plagued many of Japan’s top banks after the collapse of the ``bubble economy″ of easy credit and rampant speculation in the late 1980s and early ’90s.

``These are two of the best Japanese banks,″ said Salomon Brothers banking analyst Alicia Ogawa.

Mitsubishi was eager to gain the Bank of Tokyo’s profitable 43 overseas branches. A strong international network is considered essential to win business from the legion of Japanese companies moving production abroad to escape Japan’s soaring costs.

But Ogawa added that the merger provides little direction for weaker giants such as Sumitomo Bank and Dai-Ichi Kangyo Bank and could even hurt by removing two potential ``white knights″ to rescue other struggling banks.

Japanese banks that lent freely during the bubble period are now suffering from low real estate values and the decline in stock prices since the Jan. 17 Kobe earthquake.

Japan’s Sumitomo Bank is currently the leading Japanese bank in terms of assets, with 53.72 trillion yen ($601 billion). Japan’s Sakura Bank, itself the product of a 1990 merger between Mitsui and Taiyo Kobe banks, leads in deposits with 38.72 trillion ($433 billion).

The first report of the merger came in the afternoon edition of the financial newspaper Nihon Keizai, apparently surprising bank officials.

Investors responded favorably to the report, which was soon picked up by other Japanese media. The 225-stock Nikkei index climbed in the last hour from around 16,400 to finish at 16,681.73, up 585.48 points, or 3.64 percent.

The Tokyo Stock Exchange suspended trading of both Mitsubishi Bank and Bank of Tokyo shares soon after the reports surfaced.

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