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Powerful Tokyo Bank Rivals Merge To Form World’s 2nd Largest Bank

By Clay Chandler

Setting aside a rivalry that goes back centuries, two of Japan’s most powerful commercial lenders Thursday announced tentative plans to merge into what would become the world’s second largest bank.

Executives from Osaka-based Sumitomo Bank Ltd and Tokyo-based Sakura Bank Ltd confirmed they plan to unite by 2002 in order to cut costs, broaden their business capabilities and pump more money into computers and on-line services.

The announcement -- the third of its kind in as many months -- was greeted with applause from analysts and investors, many of whom have gazed upon Japanese banks with jaundiced eyes for years.

“You wait and wait for things to start happening around here and just when you’re about ready to throw in the towel in disgust -- wham! -- it all starts happening at once,” said J. Brian Waterhouse, a veteran Japan bank watcher at HSBC Securities (Japan) Ltd. “I think we’re right at the beginning of major transformation in the Japanese financial sector.”

Investors appeared to share that view. The Nikkei stock average closed down slightly, but bank shares soared, with Sakura Bank’s stock climbing 11.1 percent and Sumitomo Bank’s rising 10.9 percent.

With Thursday’s gains, share prices for Japan’s major banks have climbed a dizzying 225 percent since last October. Analysts say that is particularly impressive given that only one player, Bank of Tokyo-Mitsubishi Ltd, earned a profit in the most recent fiscal year.

Sumitomo Bank and Sakura Bank have a combined asset value of $925 billion. Historically, they have functioned as the vital center of Japan’s fiercely competitive industrial groups, which go by the name “keiretsu.” Sakura Bank, for example, serves as the main bank of the venerable Mitsui group, whose blue chip roster includes: Mitsui & Co., the global trading house; Mitsui Fudosan Co., the giant real estate developer; Mitsui Engineering & Shipbuilding Co.; and the Mitsukoshi department store chain. Sumitomo Bank’s key customers include: Sumitomo Corp., Sumitomo Heavy Industries Ltd.; Sumitomo Metal Mining Co. and electronics behemoth NEC Corp.

Analysts in Tokyo predicted that the bank union would be followed by a flurry of “shotgun weddings” among bank clients. “This creates tremendous pressure on the banks to restructure borrowers with more enthusiasm than they’ve shown in the past,” said Kathy Matsui, a Japanese strategist at Goldman Sachs.

Many experts described the Sumitomo-Sakura tie-up as part of much broader restructuring process that could eventually leave Japan with only four or five major banks. In August, three banks -- Dai-Ichi Kangyo Bank, Ltd., Fuji Bank, Ltd and the Industrial Bank of Japan, Ltd. -- announced plans to merge.