The Daiwa Bank, Ltd.

1-8 Bingo-machi 2-chome
Chuo-ku
Osaka 541
Japan
(06) 271-1221

Public Company
Incorporated: 1918 as Osaka Nomura Bank
Employees: 8,688
Assets: ¥16.54 trillion (US$132.34 billion)
Stock Index: Osaka Tokyo

The Daiwa Bank is unique among Japanese financial institutions in that it is licensed to conduct both trust and regular banking operations. Daiwa is therefore able to offer a wider range of in-house services and to emphasize a greater number of diverse and more profitable operations as market conditions change. In an environment such as Japan, where a bank’s fortunes are normally tied to a narrow range of financial products, Daiwa clearly enjoys greater mobility and flexibility.

The Daiwa Bank was founded in Osaka, Japan’s first major industrial and commercial center, by Tokushichi Nomura, a shrewd entrepreneur and talented venture capitalist. Daiwa came into existence in 1918 as the Osaka Nomura Bank. It was created largely to take advantage of the new capital Japan had amassed from foreign commercial ventures and domestic industrialization. In many cases, the Osaka Nomura Bank arranged financing that enabled small but promising companies to expand and prosper under often-difficult economic conditions.

One of the bank’s operations, the securities division, experienced such growth both in volume and in profits that it was run almost as a separate entity. Finally, in 1926, the division was spun off to create Nomura Securities, today Japan’s leading securities company. The following year “Osaka” was dropped from the bank’s name to give it a closer identification with Nomura Securities and to dispel the impression that its business was limited to Osaka.

Daiwa has always maintained a close relationship with Nomura Securities, which is still the bank’s only underwriter. (Daiwa Securities, a competitor of Nomura, is in no way related to the Daiwa Bank.) Nomura is a major shareholder of the Daiwa Bank, and, though Daiwa divested itself of its interests in Nomura, the two companies maintain many parallel interests through an informal arrangement.

But while the Nomura Bank had developed interests all across Japan, in 1929 it was appointed the sole banking agent of the Osaka prefectural government. It continued, therefore, to be associated with the Osaka establishment, leading it to be viewed with some suspicion in the more dynamic rival commercial center of Tokyo.

Japanese industry grew spectacularly during the 1930s as Japan began to mature as an industrial power. But one of the most important factors in Japan’s industrialization was the rise to power of militarists who favored the creation of larger, centrally directed firms. During World War II these militarists permitted, or directed, the Nomura Bank to absorb the operations of its affiliate, the Nomura Trust Company, in 1944. It was as a result of this somewhat awkward centralization scheme, coming at a time when the war was placing increasing hardships on the Japanese economy, that the bank began to operate both trust and regular banking services.

After the war, the Allied occupation forces enacted a variety of laws aimed at decentralizing Japanese industry. Many companies were divided into smaller ones, and many were forbidden to use their prewar names. Unlike some competitors, the Nomura Bank was not split up. It was also permitted to continue both trust and regular banking services, though it was forced to change its name. In 1948 it became Daiwa Bank (Daiwa means “great harmony” in Japanese).

In addition to expanding its domestic network, Daiwa established a foreign department in 1948, and the following year was authorized as a foreign-exchange bank. It took Daiwa several years to open overseas offices. Unlike its competitors Mitsubishi and Sanwa, which had merely to reopen their American and European offices, Daiwa entered these markets with Japanese clients who were attempting to expand overseas. Daiwa opened representative offices in New York in 1956 and in London in 1958.

The bank gained a stronger presence in the Tokyo market in 1954 when it took over seven offices there that had been operated by the Bank of Tokyo. It was an important acquisition for Daiwa, as Tokyo had become the center of Japanese commerce.

Daiwa began pension-trust banking in 1962. It was the first Japanese bank to manage pensions, a business that later proved both stable and profitable. Daiwa was also the only bank allowed to maintain branch offices inside the Diet—the Japanese parliament. The bank established a second office there in 1962, creating one for the Upper House and one for the Lower House. This presence gave Daiwa an intimate knowledge of government activities and a more privileged role in government finance.

Japan experienced a powerful export-led economic expansion during the late 1950s and the 1960s. Daiwa experienced similarly rapid growth as a banker and financial agent for Japanese exporters. But it was from the pension market that Daiwa experienced the bulk of its growth. The Japanese, without a social security program, had a great propensity to save, and their employers generally maintained conservative pension and insurance practices.

During the following decade, the bank opened more overseas offices, in Los Angeles in 1970, Frankfurt in 1971, Hong Kong in 1976, and Singapore in 1979. Although shaken by the Arab oil embargo in 1973 and 1974 and the Iranian Revolution in 1979, Daiwa avoided serious reverses. Some losses were incurred and, predictably, growth slowed. But by 1980 the bank’s pension trust surpassed ¥1 trillion and only four years later, the fund exceeded ¥2 trillion.

Beginning in 1952 the gradual deregulation of Japanese financial institutions caused occasional shocks in the banking community. One trend, however, that became especially acute in the 1980s was the narrowing spread between lending and deposits—as a result of increased competition. The Japanese banking community in general began to promote fee-based services. Daiwa took the matter a step further, attempting to cover all the bank’s expenses with revenues from fee income alone. In the event that spread-based operations became unprofitable, the bank could more easily maintain growth.

Daiwa established a new trust headquarters in 1985 to reinforce its position in trust banking, promote fee income, and demonstrate its ability to accommodate the increasingly diverse needs of Japanese society. As an example, Daiwa became involved in land trusts, a type of real estate-asset management. The bank’s most important land trust is the Chuokan project, operated on behalf of the Osaka prefectural government.

The man most responsible for Daiwa’s successful exploitation of fee-based services was Sumió Abekawa, who was named president in 1984. He replaced Ichiro Ikeda who, despite tremendous personal sacrifice, had been unable to shake Daiwa out of a period of stagnation. Daiwa resumed a higher rate of growth during the mid-1980s, and began to prepare for the ensuing decades as a more aggressive and confident institution.

Principal Subsidiaries

Daiwa Bank, Canada; Daiwa Bank Trust Company (U.S.A.); Daiwa Bank (Capital Management) Ltd. (U.K.); Daiwa Overseas Finance Ltd. (Hong Kong); Daiwa Fiananz AG (Switzerland); Daiwa BK Financial Futures Singapore Pte. Ltd.; Daiwa Finance Australia Ltd.