It Is World's Biggest Bank; Can it Be One of the Best?

Tokyo Mitsubishi Bank is born as Japan's industry faces problems. INTERVIEW

TASUKU TAKAGAKI may be one of the bravest men in Japan, judging by the task he has taken on: He has just put together and become chief executive officer of the biggest bank in the world - a bank that makes the newly merged Chase and Chemical banks look almost puny.

The question is whether he has created the bank of the future or just the last of a breed of monstrous financial dinosaurs.

The new Tokyo Mitsubishi Bank, of which Mr. Takagaki is the prime architect, is a behemoth by anyone's standards. Its assets are about $725 billion, more than $130 billion greater than the next biggest bank (Sanwa of Japan), almost twice as much as the biggest non-Japanese bank (Deutsche Bank with $367 billion), and more than twice the $305 billion of the new Chase Manhattan Corp. But the monster's earnings power is small, with a return on equity of about 3 percent, which is tiny compared with the 15 to 20 percent being made by major US and European Banks.

Takagaki says he has no doubt the merger was the right thing. He notes that his own Bank of Tokyo was a specialized foreign-exchange bank, which was seeing its niche role eroded as other banks became more international. "Some of my colleagues may have preferred to remain independent, but I thought that world financial markets were changing so that to remain [specialized] would not be durable," he says in an interview.

The merger with the larger Mitsubishi Bank, he says, grew out of many meetings in which what was said was less important than the growing feeling that a marriage might be good. "I knew [Mitsubishi Bank president Tsuneo Wakai] for many years, so the conversation was at first a casual one, not so formal.... We realized that we had many ideas in common, especially for the future of the Japanese banking system."

Some observers see it as a neat fit, with the Bank of Tokyo having operations in 45 countries but only 100 domestic branches, and Mitsubishi deriving 70 percent of its income from a solid domestic base as Japan's sixth biggest bank.

The merger was announced a year ago and completed April 1, with Takagaki taking the top job as president and CEO and Mr. Wakai becoming chairman.

Not everyone is convinced that the new bank will be a success. Apart from doubts about whether big really is best, a senior manger of another big bank comments: "Maybe in the long run, Takagaki will be right because Bank of Tokyo was being squeezed on its traditional international patch, but there are rising managers at Bank of Tokyo disgruntled because they will not now become directors. Perhaps more damaging, Bank of Tokyo took pride in being an independent bank not allied to any of the big business groups, but now it is in with Mitsubishi, the biggest of the keiretsu [groups of interlocking businesses]. We expect to pick up some business because Tokyo has lost its independence."

Takagaki admits that the acid test is what customers think.

"Mitsubishi is a very strong industrial and business group, and the bank of Tokyo is in a sense neutral, so the serious question was whether this merger would mean confining the new bank. As of today I have not heard of any major customer deserting us. [Major customers include Hitachi and Toyota.] Of course, they say that what is most important is not a vague promise, but the actual performance of the bank. They have told us that if the new bank gives as good a service as the Bank of Tokyo did - or perhaps a better one because of the greater muscles we have - they will be delighted to continue with us."

On the positive side, both Bank of Tokyo and Mitsubishi Bank had relatively clean balance sheets despite the collapse of the "bubble economy." Both banks will report profits for the year just ended, while the big Japanese banks as a whole will chalk up combined losses on the order of $30 billion.

But Takagaki adds that "if you have two very good teams, it is more difficult to make one good team than if you have a good team and a bad team."

The biggest barrier to success for the new bank may be Japanese corporate culture. Normally an executive joins an institution from school or university for life, and the first task is to become immersed in its culture. Trying to amalgamate two big groups is an uphill struggle.

When Dai-Ichi Kangyo Bank was formed in a merger of two big banks more than 25 years ago, it had to have three personnel departments, one for each of the old banks and one for the new recruits to the united bank. The new Tokyo Mitsubishi Bank has started life with just one personnel department. It also shed the three-diamonds logo that is the trademark of all Mitsubishi group companies.

But there was resistance to coming up with a new name. Neither side wanted to sacrifice its sense of identity and both shied away from a boastful new moniker such as Number One Bank or First Bank. So in Japan, it is Tokyo Mitsubishi Bank, while abroad it is Bank of Tokyo-Mitsubishi.

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