interesting article from
worldlyinvestor.com
Bank Stock Looks Vulnerable
September 22, 1999 7:43 AM EDT
By Gabriella Faerber
Staff Writer
As Japanese stocks plunged 3.4% Wednesday, stocks of high tech firms and exporters got hit hard. But, Japan's banks, including the biggest of them all, Bank of Tokyo-Mistubishi managed to weather the storm
That's nothing new as Bank of Tokyo-Mitsubishi's ADRs have enjoyed a banner year. The ADR price has more than doubled since last September, while the Nikkei is up only 30% during that same period.
Bank of Tokyo-Mitsubishi is used to being leader of the banking pack. But suddenly, Japan's biggest bank finds it's more a case of just having to run with the pack.
When Industrial Bank of Japan, Dai-Ichi Kangyo Bank and Fuji Bank in August announced their plans for a $1.3 trillion mega-merger to create the world's largest bank, analysts speculated it would be just a matter of time before other leading banks were forced into reorganization.
The general consensus was that it wouldn't be long before the industry saw heavyweights such as Sanwa Bank teaming up with Sakura Bank or Bank of Tokyo-Mitsubishi joining ranks with Sumitomo Bank.
BOT-Mitsubishi hasn't resorted to that, yet. But it has unveiled a reshuffle that indicates that it sees the need to beef up its own operations.
"Bank of Tokyo-Mitsubishi is the blue chip of all Japanese banks. It is the best performing. It has the best capitalization. It is under no real compulsion to bring this about," says Lindsay Coburn, Japan analyst with IDEAglobal.com in Singapore.
"But it does feel that it is better going now, securing alliances early rather than wait when the opportunities may not be there," says Coburn.
Been There, Done That
Trouble is, it doesn't seem like BOT-Mitsubishi is able to offer the market anything that hasn't been done before. BOT-Mitsubishi's reorganization will involve reorganizing its operations into eight business units.
Those plans are broadly in line with restructuring plans already hammered out by Japan's 15 other main banks, bludgeoned into submission in exchange for a massive $67 billion government rescue package last year.
And analysts suggest BOT-Mitsubishi's strategy is slow to get off the mark.
BOT-Mitsubishi is currently looking to slash its staff to some 15,500 by March 2002. It has about 18,000 employees right now. When the bank was formed in 1996, it had a workforce of some 20,000.
"Deregulation has got the big players very worried," says one regional banking analyst. "The smaller, regional players are very well managed. They don't need sprawling operations, big rents or big staff and they are able to come to you."
The aim of the deregulation is to enable Japan's banks to be more competitive globally and put Tokyo on an equal footing with London and New York.
But Japanese banks face awesome competition from huge international banks formed by such moves as Citicorp's takeover of Travelers Group and Deutsche Bank's takeover of Bankers Trust.
And despite all the efforts, it is still unclear whether Japanese banks have what it takes.
"There is a remarkable incapacity amongst all Japanese banks to understand the threats and to work out strategies to deal with them," says the analyst.
'When Japanese clients finally decide to shift their money out of deposits, Japanese banks will get hit. Banks must therefore make sure they keep their business by channeling it into other financial product lines," says Coburn.
In August, BOT-Mitsubishi said it would form a joint company with Sumitomo to develop a pension plan account management system. That move came after Industrial Bank of Japan announced a similar deal with Nomura Securities.
Just last week, a report said BOT-Mitsubishi was on the verge of talks with Nomura Securities about taking a stake in brokerage Kokusai Securities. Nomura owns some 30% of Kokusai. The report says BOT-Mitsubishi is looking to take some 10% of Kokusai, with a view to boosting that stake to 20%.
It will also raise the number of outlets selling mutual funds to 180 over the next two years. That's up from the current 48. It also wants to sell more funds over the Internet.
To that end, BOT-Mitsubishi says it will beef up spending on information technology (IT) by some 30% to between 400 billion yen and 450 billion yen for the next four years.
That may be just a small step toward keeping up with IT leader Fuji Bank and probably nowhere near enough to keep pace with western competitors.
"Japanese banks will have to run twice as fast to keep up," says Coburn. "They are so far behind in embracing technology, compared to western banks."
BOT-Mitsubishi has also come up with plans to offer financial services over the Internet, but only for its most wealthy clients.
The services on offer include asset management information and financial advice online. Insurance and other products will be added to the line-up at a later stage.
Despite skepticism from some market observers, BOT-Mitsubishi says its strategy will work. In March 2003, it expects to achieve net profit of $3.1 billion. And for the year to March 2000, BOT-Mitsubishi aims at group net profit of 150 billion yen after a loss of $790 million in fiscal 1998. |
