Tokai-Asahi alliance

Editorial, Mainichi Shimbun, 8 October 1999

The announcement on Thursday by Asahi Bank and Tokai Bank that they plan to establish a joint holding company next October to integrate their operations is a sign that the consolidation of the nation's banking sector is accelerating.

The alliance of these two banks will create the nation's third-largest banking group with combined assets of about 59 trillion yen. The new banking group will also rank among the world's top-ten banking groups.

In August, the Industrial Bank of Japan (IBJ), Dai-Ichi Kangyo Bank (DKB) and Fuji Bank announced that they would consolidate their operations to form the world's largest banking group with assets of about 140 trillion yen. Although the scale of the Asahi-Tokai tie-up is much smaller, its impact on Japanese finance will be significant.

Tokai Bank and Asahi Bank had agreed to a comprehensive tie-up in September 1998 and planned to set up a holding company by 2001. But they decided to move up their plans by more than a year after concluding that they needed to reap the benefits of integration as soon as possible to respond to the pressures of increasing competition in financial markets at home and abroad.

This alliance is important because it could eventually create a mega-regional bank that will be able to provide banking services for most of the regions in the nation that face the Pacific Ocean. Tokai Bank is the nation's seventh-largest city bank, or large commercial bank, and has built a strong presence in the Nagoya and Chubu regions. Asahi Bank was created by the merger of Kyowa Bank and Saitama Bank, and is the eighth-largest city bank. Its branches are concentrated in the Tokyo metropolitan region.

Both Tokai Bank and Asahi Bank are lower-ranking city banks that can complement each other by joining forces. Both banks have extensive relationships with small and medium-sized firms, many of which have been reeling from the prolonged recession.

Tokai Bank and Asahi Bank are expected to play a major role in revitalizing regional economies nationally by continuing to lend to small and medium-sized firms. Their business strategy is splendid and demonstrates that creating a mega-bank to take on the world market is not the only way to go.

On the other hand, if the Asahi-Tokai combination is unable to live up to expectations that it will play a vital role in the economic recovery of the nation's regions, its reason for existence will be called into question.

The holding company will play a key role in the Asahi-Tokai alliance as well as the IBJ-DKB-Fuji alliance, and is likely to become the preferred method for consolidation in the financial sector. It is a convenient vehicle for dividing and reorganizing businesses held by banks, but the Legal System Council should also consider adopting an improved legal framework to facilitate corporate reorganizations.

The announcement of these alliances is expected to focus additional attention on the moves to be taken by the Bank of Tokyo-Mitsubishi, Sumitomo Bank, Sanwa Bank, Sakura Bank and Daiwa Bank. For the immediate future, it will be interesting to observe the kind of relationship that Daiwa Bank, which has aspirations of becoming the Kansai's leading regional bank, will attempt to establish with Asahi Bank and Tokai Bank.