Bank of Tokyo-Mitsubishi Ltd.
Bank of Tokyo-Mitsubishi Ltd.
Total Assets: ¥72 trillion (US$701.4 billion) (1995)
Stock Exchanges: Tokyo Osaka New York Basel Geneva London Paris Zurich
SICs: 6029 Commercial Banks. Not Elsewhere Classified: 6081 Branches & Agencies of Foreign Banks; 6082 Foreign Trade & international Banking Institutions: 6159 Miscellaneous Business Credit Institutions: 6211 Security Brokers. Dealers & Flotation Companies: 6282 Investment Advice: 6712 Offices of Bank Holding Companies: 6799 Investors. Not Elsewhere Classified
Bank of Tokyo-Mitsubishi Ltd., the world’s largest bank, was formed in April 1996 from the merger of The Mitsubishi Bank, Ltd. and Bank of Tokyo, Ltd. The new superbank combined Mitsubishi’s extensive network of domestic branches with Bank of Tokyo’s overseas strength, and includes operations in a wide range of banking and financial services. Prior to the merger, Mitsubishi Bank and Bank of Tokyo were two of the healthiest banks in Japan and had survived, relatively unscathed, the Japanese lending crisis of the early 1990s.
Mitsubishi Bank was only one of many companies that originated as a division of the giant Mitsubishi trading conglomerate and were later incorporated as independent companies. Before World War II. the various Mitsubishi companies were allowed to operate in concert as a large vertical monopoly called a zaibatsu. Postwar industrial legislation, however, brought about the disintegration of the conglomerate and forced each Mitsubishi company, including Mitsubishi Bank, to endure success or failure without support from its sister companies. Industrial deregulation eventually allowed the group to re-form.
Mitsubishi Bank had its origin in the exchange office of the Mitsubishi Shoji. which was the original Mitsubishi company and one of the largest maritime shipping and warehousing enterprises in Japan. The exchange office added foreign-currency transactions to its business in 1890. and five years later was reorganized into a full-service banking department. By 1917, as the Mitsubishi group continued to grow, it became necessary that it reorganize. Several divisions were spun off into independent companies, including the bank, which became independent in 1919. The following year. Mitsubishi Bank opened offices in New York and London.
Business for the Mitsubishi group as a whole remained quite strong through the 1920s, largely because of a rapidly expanding economy. As the primary instrument for the group’s financial needs, the bank grew accordingly, and from 1919 to 1929 doubled its capitalization, to ¥100 million.
Japan’s tumultuous industrialization brought down many banks, even those connected with trading conglomerates. The Mitsubishi group, however, was the strongest group in Japan, and survived calamities such as the Kanto Earthquake in 1923 and several serious recessions.
Mitsubishi was one of the most active Japanese interests on the Asian mainland, particularly in Manchuria. The bank opened an office at Dairen. Manchuria’s main port, in 1933. At this time, a group within the military was rising to power that advocated a neomercantilist Japanese domination of Asia. This led to war with China in 1937. and political isolation some years later. On the eve of World War II. Mitsubishi was forced to close its offices in both London and New York.
The war was at first a profitable venture for the Mitsubishi group. Japan’s largest arms manufacturer. But after the United States joined the war against Japan, the entire nation’s industrial onganization had to be changed. In order to increase efficiency. the government ordered a massive centralization, which in 1943 resulted in the merger of Mitsubishi Bank and One Hundredth Bank. The following year, the bank opened another office in occupied Shanghai under a directive to assist Japanese commercial and military interests.
When the war ended in 1945, the Mitsubishi group had suffered devastating losses in virtually every area of its operation. This, coupled with the collapse of commerce and the currency, left the bank with little but its human capital. What remained of the organization was split into hundreds of smaller companies by the occupation authority. Mitsubishi Bank, renamed Chiyoda Bank in 1948, was reorganized and its ranks were purged of war criminals.
Chiyoda Bank, named for the Tokyo financial district in which it was headquartered, started over as a common city bank and was strictly forbidden to reestablish ties with the other former Mitsubishi companies. These regulations, however, were gradually relaxed over time until, in 1953, after reopening its offices in London and New York, the bank readopted the name Mitsubishi.
With the expertise of its remaining staff, Mitsubishi Bank quickly reestablished itself as a powerful trade coordinating entity and rebuilt its ties with the other Mitsubishi companies, particularly the four trading companies that had reemerged in 1954. The bank doubled its capitalization to ¥5.5 trillion between 1953 and 1956, and again to¥11 trillion in 1960. Indeed, the bank had grown so spectacularly that its managerial ranks soon failed to keep pace. In an effort to place more experienced workers in the field, in 1957 the bank established a training center.
During the 1960s, Mitsubishi Bank opened offices in Los Angeles, Paris, and Seoul. As an institution increasingly involved in corporate finance, the bank followed its clients to both export and resource markets. It financed raw-material purchases, helped to build factories that turned out finished products, and participated in the distribution of those products worldwide. As such, Mitsubishi Bank became an integral contributor to Japan’s export-led growth.
Still chartered as a city bank, Mitsubishi was prevented from engaging in certain foreign-exchange and long-term-financing activities. Individual banking, perhaps Japan’s most stable business, was a low priority for Mitsubishi; the bank simply found greater opportunities in corporate business. Much of that opportunity grew from the influence the bank wielded inside the boardrooms of its clients.
During the 1970s, the bank established several more offices in Europe, the United States, and Asia. A subsidiary, Mitsubishi Bank of California, was opened in 1972. Later in the decade, however, as Japan became a capital-surplus nation, the lending market began to dry up as more and more companies elected to conduct their own financing. By the late 1970s, deregulation had narrowed profits on lending even further.
Recognizing the importance of information management, the bank established an information office in 1972, long before such intelligence units were popular. Such an office provided it the expertise with which to establish an investment-banking operation. Also. Mitsubishi experimented in new areas of business, including leasing, asset management, and a number of other quasi-financial ventures.
Kazuo Ibuki initiated a broad corporate reorganization shortly after he was named president of Mitsubishi Bank in June 1986. In an effort to make Mitsubishi a universal, or fullservice, international bank, Ibuki divided the company into five groups: international, merchant, corporate, national banking, and capital markets. A number of young, somewhat less stodgy employees were promoted to management positions, injecting new imagination and enthusiasm into the organization.
The bank also reorganized its New York-based trust and banking subsidiary, formerly affiliated with the Bank of California, which Mitsubishi purchased in 1984 because it held great promise for Mitsubishi’s entry into trust banking and securities.
In the late 1980s, Japan’s economy went through a period of extreme speculation as land prices and share prices soared beyond reason. When the “bubble’’ burst early in the 1990s, the banking industry in Japan was hit hard. Many banks had to take huge write-offs on unrecoverable loans. A very conservative operation, Mitsubishi was a known risk avoider, and, as a result, did not suffer much from the crisis. In fact, into the mid-1990s, Mitsubishi could boast of a lower than average ratio of nonperforming loans to total assets. The bank had wisely stayed away from speculative property loans and subsequently earned its rewards for its prudence.
One such reward came in 1994 and involved Mitsubishi’s takeover of Nippon Trust Bank Ltd. One of the many victims of the burst bubble, and also one of the largest, Nippon Trust’s loan portfolio included as much as ¥500 billion in unrecoverable loans. Because Mitsubishi owned a five percent stake in Nippon, Japan’s finance ministry pressured Mitsubishi to bail the company out. So Mitsubishi paid ¥200 billion (US$2 billion) for 64 percent more of Nippon, bringing Mitsubishi’s stake to 69 percent. Observers noted that Nippon Trust’s bad loans exceeded its net asset value and therefore the acquisition could hardly be called a gain. However, the finance ministry rewarded Mitsubishi for taking on the Nippon burden by allowing the bank to begin managing pension funds ahead of the other city banks. Since all the city banks were anxious to move into various financial services and were frustrated at the slow pace of deregulation, this was a significant coup for Mitsubishi.
In March 1995, Mitsubishi Bank and Bank of Tokyo, Ltd. announced that they intended to merge. Compared with Mitsubishi’s strength in retail and corporate banking in the domestic market. Bank of Tokyo (BOT) had a long history of involvement in overseas banking and finance since its founding in 1880 as Yokohama Specie Bank. The only bank in the country to employ more foreigners than Japanese, BOT developed into Japan’s leading foreign exchange bank. This position led the bank to gain many foreign clients, as well as to successful operations in derivatives trading and overseas banking, notably its Union Bank based in California. In fact, in terms of branches, BOT’s success as an international operator was clear—it had just 37 domestic branches at the time of the merger, compared to 363 overseas.
The merger was consummated in April 1996, resulting in the world’s largest bank, Bank of Tokyo-Mitsubishi Ltd., with total assets of ¥72 trillion (US$701.4 billion), 40 percent more than its nearest rival. Because of the complementary nature of the merged banks holdings, there was remarkably little overlap in the new banking behemoth. Further, unlike in typical mergers in the United States, huge numbers of employee layoffs were not announced at the same time as the merger. Even one observer’s estimate of the number of jobs to be shed (most likely through attrition and early retirements) was relatively small—2,000. This was due both to how well the two operations meshed and to the more paternalistic nature of Japanese business. Ironically, the one area in which significant overlap did exist was in California, where Mitsubishi’s Bank of California and BOT’s Union Bank were to be merged, with perhaps more typically American layoffs.
Before the creation of the Bank of Tokyo-Mitsubishi, Sanwa Bank was regarded as the top world bank and had set a goal in the late 1980s of becoming the world’s leading universal bank. Given the various strengths of Mitsubishi and BOT, it now appeared quite possible that Bank of Tokyo-Mitsubishi would be the first to reach that lofty objective. In any case, its sheer size would certainly make it a force to be reckoned with.
Bank of Australia Ltd.; MBA Securities Limited (Australia); Mitsubishi Bank of Australia Limited; Mitsubishi Bank (Europe) S.A. (Belgium); Banco de Tokyo S/A (Brazil); Banco Mitsubishi Brasileiro S.A. (Brazil); Tozan Leasing S/A Ar-rendamente Mercantil (Brazil); The Bank of Tokyo Canada; Mitsubishi Bank of Canada; Mitsubishi Finance (Cayman) Limited (Cayman Islands); Banque Europeenne de Tokyo S.A. (France); Bank of Tokyo (Deutschland) AG (Germany); Mitsubishi Bank (Deutschland) GmbH (Germany); BOT Finance (H.K.) Ltd. (Hong Kong); BOT International H.K. Limited (Hong Kong); Kincheng-Tokyo Finance Co., Ltd. (Hong Kong; 50%); Liu Chong Hing Bank Limited (Hong Kong); Mitsubishi Finance (Hong Kong) Limited; Worldsec Asset Management Limited (Hong Kong); Worldsec Corporate Finance Limited (Hong Kong); Worldsec International Limited (Hong Kong); P.T. Mitsubishi Buana Bank (Indonesia); BOT Finanziaria Italiana S.p.A. (Italy); The Bank of Tokyo (Luxembourg) S.A.; Amanah Merchant Bank Berhad (Malaysia); Sime Diamond Leasing (Malaysia) Sdn. Bhd.; The Bank of Tokyo (Holland) N.V. (Netherlands); MBE Finance N.V. (Netherlands); Bank of Tokyo (Curacao) Holding N.V. (Netherlands Antilles); MBL Finance (Curacao) N.V. (Netherlands Antilles); The Bank of Tokyo (Panama) S.A.; Mitsubishi Bank (Panama) S.A.; BOT International (Singapore) Ltd.; Diamond Futures (Singapore) Pte. Ltd.; MBL Merchant Bank (Singapore) Limited; Bank of Tokyo (Switzerland) Ltd.; Mitsubishi Bank (Switzerland) Ltd.; The Bangkok Tokyo Finance & Securities Co., Ltd. (Thailand); Thai-Mitsubishi Investment Corporation Limited (Thailand); Bank of Tokyo International Ltd. (U.K.; 95%): Mitsubishi Finance International Ltd. (U.K.); Saudi International Bank (U.K.; 5%); BanCal Tri-State Corporation (U.S.A.); Bank of California International Corporation (U.S.A.); The Bank of California, N.A. (U.S.A.); Bank of Tokyo Intl., U.S.A.; The Bank of Tokyo Trust Co. (U.S.A.); BOT Securities Inc. (U.S.A.); The Chicago Tokyo Bank (U.S.A.; 4.93%); Mitsubishi Bank Trust Company of New York (U.S.A); Mitsubishi Capital Inc. (U.S.A.); Mitsubishi Capital Market Services, Inc. (U.S.A.); Mitsubishi Financial Futures Inc. (U.S.A.); Mitsubishi Securities (USA), Inc.; Peter Piper, Inc. (U.S.A.); Tokyo Bancorp Intl. (Houston) Inc. (U.S.A.); Union Bank (San Francisco) (U.S.A.; 76%).
“The Big One,” Economist, April 1, 1995. pp. 60-61.
Bremner, Brian, William Glasgall. and Kelley Holland, ‘Tokyo Mitsubishi Bank: Big, Yes. Bad. No.’ Business Week, April 10, 1995.
“Mitsubeautiful,” Economist, February 9, 1991. p. 86.
“Nippon Entrusted,” Economist, October 15, 1994. p. 104.
Sapsford, Jathon, and Robert Steiner. “Huge Japanese Merger Could Help Revitalize the Financial Sector.” Wall Street Journal, March 29, 1995. pp. A I, A8.
—updated by David E. Salamie