Is Bigger Better for Mitsubishi Tokyo?
Merger of UFJ Holdings and Mitsubishi Tokyo Financial Group, holding company of Bank of Tokyo-Mitsubishi and Mitsubishi Trust bank, will create the world's biggest bank in terms of assets. Its combined assets of over 190 trillion yen will propel it slightly above Citigroup. This event is continuation of merger process that started in Japan about a decade ago in response to nonperforming loan crisis in banking industry. Banks were hoping to reduce impact of bad loans by either acquiring more customers or by merging to acquire more assets.
Mizuho was formed in September 2000 through a three-way merger. Sumitomo Mitsui and UFJ Holdings followed suit shortly afterwards.
Mitsubishi Tokyo's Profitability Woes
Last fiscal year MTFG earned 650 billion yen in profits, the lowest among the four megabanks. Moreover, while Western banks have been increasing their profit share from non-interest revenue streams such as investment banking and advisory services such as commissions on mergers and acquisitions and sales of financial products that makes up about half of their total profits, Japanese banks earn only 20 to 30 percent of their profits from such activities.
Moreover, it is to be seen whether Mitsubishi Tokyo and UFJ will carry out meaningful restructuring, such as payroll cuts and branch closures, a process deemed required to be efficient. Past experience with large banks like Mitsubishi Tokyo indicates that this process will be slow, if carried out at all.
Global Impact of Mitsubishi Tokyo's Size
While possible demise of a company like the Mitsubishi Motors could affect lives of hundreds of thousand of people - its employees, stockholders, suppliers, dealers, a few Mitsubishi car enthusiasts, any misstep taken by a new larger Mitsubishi Tokyo Financial group will have serious global repercussions. In view of Mitsubishi group companies' lack of social consciousness and responsibilities, and past mistakes, one has to watch this merger move with trepidation. [Material partly from Asahi Shimbun]