Japanese banks hope tie-up will revive sector

Three of Japan's top banks announced plans yesterday to combine their businesses to create the world's largest banking group by assets.

In the most dramatic attempt to date to regenerate the country's troubled financial sector, Industrial Bank of Japan, Fuji Bank and DaiIchi Kangyo Bank will combine into a single holding company next autumn.

Although they will initially operate as separate units, the three will be blended by spring 2002 into a single banking structure, split into corporate, retail and investment banking operations, and affiliated financial companies.

The group would have combined assets of 141,800 billion yen (#1,195.10 billion).

The three banks said they intended to create a Japanese company with sufficient size and power to fight back against US and European banks, after years of decline in which Japanese banks were plagued by huge bad loans.

The alliance would also allow Japan to participate in the broader global trend of bank consolidation that has already delivered a series of mergers in the US and Europe, said Mr Masao Nishimura, IBJ president.

"Even as dynamic realignments take place across the globe and across borders, Japanese banks had been left out in the cold while we tried to resolve our bad loan problems," he said.

"The three of us agreed that we wanted to be the front-runner in revitalising Japan's financial system."

The Japanese government immediately supported the planned alliance. Mr Hakuo Yanagisawa, head of the Financial Reconstruction Commission, the banking reform body, said it would give legal support to the alliance and expected more consolidation.

"We hope this will prompt various moves [by other Japanese banks]," he said.

The banks tentatively plan to shed about 6,000 of their 34,000-strong staff, close 150 of their 645 branches, and recoup about Y100 billion in savings over the next five years, about a fifth of their current costs.

But these savings will be partly offset by higher spending on information technology.

Investors have welcomed the planned alliance, not least because they hope it could spur broader consolidation in Japan's banking sector. Bank shares surged 10.2 per cent, pushing the Nikkei 225, the key stock market indicator, up 1.22 per cent to close at 18,098.11.

The Japanese media yesterday reported that Tokai and Asahi had decided to establish a holding company similar to the IBJ/DKB/Fuji alliance by 2001. The banks, which agreed an alliance last autumn, said the matter was still under consideration.

The IBJ/DKB/Fuji group named Mr Nishimura and Mr Yoshiro Yamamoto, Fuji president, as co-chairmen and chief executive officers of the new outfit.