Analysts viewed the merger plans announced Thursday by Sakura Bank and Sumitomo Bank in a positive light as part of a drastic industry realignment sweeping the nation’s banking sector.
Ryoji Sekido, associate partner at Andersen Consulting’s strategic services division, said the Sakura-Sumitomo merger makes more sense than the three-way consolidation between Industrial Bank of Japan, Dai-Ichi Kangyo Bank and Fuji Bank announced in August.
“The two banks are headquartered in different regions, with Sumitomo boasting a strong customer base in the Kansai region and Sakura in Kanto,” Sekido said. “I think the merger will be effective (by avoiding redundancy).”
Sekido added that the purpose of the merger is clearer also because they are both committed to strengthening domestic operations.
“Sumitomo has already tied up with Daiwa Securities Co. in the wholesale and investment banking business,” Sekido said. “The merger this time will help consolidate the two banks’ domestic retail operations as well as businesses targeting small and midsize corporations.”
Katsuhito Sasajima, director of equity research department at Warburg Dillon Read, also praised the move, saying the banking sector, which had lagged behind in realignment efforts in comparison with other industries, is getting serious about changing at last.
“Realignment led by the private sector has accelerated since the announcement of the IBJ-DKB-Fuji consolidation,” Sasajima said. “With options for a future partner narrowing, the two banks probably didn’t even care which corporate group they belonged to.”
Sakura Bank is a core firm in the former Mitsui “zaibatsu” group, while Sumitomo Bank has headed the Sumitomo corporate group.
Even though the two banks might have decided to unite out of desperation, the move is positive, as demonstrated by the surge in their stock prices Thursday, Sasajima said.
But it remains unclear whether the merger of two zaibatsu-related banks will have a ripple effect on other financial institutions, such as insurance firms within their corporate groups, said Nobuyasu Uemura, a rating analyst at R&I.
Life and nonlife insurers within the Sumitomo and Mitsui groups will probably watch carefully what benefits — if any — it would bring to cooperate with firms in the other camp, he said.
“The merger of two banks does not necessarily mean that group companies under them will consolidate as well,” Uemura said. He added that the merger will have no impact on the rating outlook of the group insurance firms at the moment.
The success of the merger will hinge on whether the two banks can really follow through with restructuring plans during the next two years, Sasajima said.
“The reduction of 9,300 employees means they will cut 30 percent of their entire workforce,” he said. “I think such a huge personnel cutback is unprecedented, even internationally.”
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