Mizuho Financial Group Inc.
Mizuho Financial Group Inc.
Incorporated: 1971 The Dai-Ichi Kangyo Bank; 1923 The Fuji Bank; 1902 Industrial Bank of Japan
Total Assets: ¥140 trillion (US$1.2 trillion) (2002)
Stock Exchanges: Tokyo
Ticker Symbol: 8411
NAIC: 551111 Offices of Bank Holding Companies
Mizuho Financial Group Inc. operates as the second largest financial services concern in the world, just behind Citigroup. Dai-Ichi Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan (IBJ) were merged together in September 2000 as part of an attempt to restructure and consolidate Japan’s volatile banking industry. After the merger, the three banks fell under control of Mizuho Holdings Inc. Mizuho was plagued by bad loans and major integration problems after the deal, which led to a major reorganization in 2003. Mizuho Financial Group was created to oversee Mizuho Holdings, which in turn, acted as a holding company for the Group’s banking and securities interests.
The History of Dai-Ichi Kangyo
DKB was the product of a merger between two established hundred-year-old banks. The Nippon Kangyo Bank was established in 1867 as a “special bank” which raised capital by issuing debentures. The Dai-Ichi Kokuritsu Ginko, or First National Bank, was founded in 1873 by the industrialist Eiichi Shibusawa. In addition to its regular business, Dai-Ichi issued currency on behalf of the government treasury as a central bank. It was removed from this role when its national banking charter expired in 1896. Dai-Ichi, re-incorporated as an ordinary commercial bank, was headed by Shibusawa until his retirement in 1916. Nippon Kangyo, meanwhile, was incorporated in 1896 to issue long-term and low-interest government bonds for agriculture and industry.
The two banks developed in different directions, particularly during the period between 1910 and 1930, as Japanese industry matured on a large scale. Nippon Kangyo was evenly represented throughout Kanto prefecture and remained closely associated with rural industries. It continued to broaden the scope of its business, adding real estate financing in 1911. Dai-Ichi’s business, on the other hand, was concentrated in Tokyo, the industrial center of the prefecture and capital of Japan.
At this time, the only major factors that these banks had in common were their location and their competition against the larger zaibatsu banks, namely, Mitsubishi, Mitsui, Sumitomo, and Yasuda. Not really banks as much as outgrowths of enormous industrial combines, the zaibatsu banks permeated virtually every sector of Japanese industry and society, providing both high finance and individual banking services. The zaibatsu collectively squeezed smaller banks such as Nippon Kangyo and Dai-Ichi out of many high-growth industrial ventures simply by financing themselves.
As the industrial backbone of Japan, the zaibatsu naturally wielded great political influence in Japan—influence which perpetuated their strength. During the 1930s, however, a militant right-wing officers corps gained power over the Japanese government. The militarists had hoped to deconcentrate industrial power, but their imperialist adventurism in Asia required the opposite action. In the end, the government encouraged small and medium-sized enterprises to amalgamate into larger companies.
Despite a rash of consolidations, Nippon Kangyo maintained its independence throughout the war, although it was ordered by the government to issue war bonds in 1937. Dai-Ichi, however, was merged with the Mitsui Bank in 1943 and renamed Teikoku Bank.
When World War II ended in 1945, the occupation authority purged Japanese industry of war criminals and enacted laws to divide the zaibatsu and other large companies into smaller entities. These laws separated the Dai-Ichi Bank from Teikoku in 1948.
Nippon Kangyo’s role in the postwar economy, meanwhile, had yet to be decided upon. It was awarded an exclusive license in 1945 to handle the national lottery for local public agencies. Five years later, the bank gave up its special status and became a general deposit bank. In 1952, following passage of the Long-Term Trust Bank Law, Nippon Kangyo abandoned its original business of issuing bonds.
Both banks provided funding for (in essence, invested in) a number of Japanese industries in their infancy. As the basic groundwork was laid for a modern, export-led economy, Japanese banks in general began to experience a strong and relatively steady expansion. Nippon Kangyo and Dai-Ichi each developed an impressive list of clients who wished to remain independent of the zaibatsu groups. Nippon Kangyo’s customers included Nippon Express, Shiseido cosmetics, and Seibu Department Stores. Dai-Ichi’s list included the more vigorous Hitachi, Kawasaki Heavy Industries, and C. Itoh.
The first indication of reform in the postwar Japanese banking regime came in the late 1960s, when American banks, distinguished by huge capitalizations, moved into Japan and gradually gained control of an ever-increasing share of the Japanese lending market. Unwilling to enact protectionist banking legislation, the government’s Ministry of Finance advocated consolidations in the belief that larger banks would redistribute their branches and more efficiently tap new sources of capital.
The first consolidation proposal, forwarded in 1969, would have merged Dai-Ichi with the larger Mitsubishi Bank. This proposal failed, in part because Dai-Ichi’s “lesser zaibatsu” clients, the Furukawa and Kawasaki industrial groups, feared subjugation by their competitors in the Mitsubishi group. Another source of anxiety for Dai-Ichi board members was that because of the uneven size of the two banks, the merger appeared to be a Mitsubishi takeover. Wishing to preserve the bank’s organizational independence and pursue a true merger, Dai-Ichi began to investigate the feasibility of a merger with the Nippon Kangyo Bank during 1970.
Dai-Ichi, Japan’s sixth largest city bank at the time, appeared in every respect to be perfectly matched with Nippon Kangyo, then ranked eighth. The greatest benefit the banks would gain from a merger was a more efficient geographical redistribution of branch networks. Dai-Ichi was a metropolitan bank whose business was centered in Tokyo and Osaka. Nippon Kangyo, on the other hand, maintained a nation-wide branch network with offices in every one of Japan’s 46 prefectures.
Still, of almost 300 branches, about 50 were in the same location. In order to achieve better geographical coverage, redundant offices belonging to Dai-Ichi were relocated to more promising sites in suburban areas. Another problem with the merger was that Nippon Kangyo’s computer system was IBM-based, while Dai-Ichi used Fujitsu equipment. This problem, while not unresolvable, took years to overcome.
The merger was completed in October 1971. The new bank, called Dai-Ichi Kangyo, immediately became Japan’s largest city bank. In order to start with a new, more positive public image, DKB adopted a red heart on a white background as its logo. The gargantuan “bank with a heart” redoubled efforts to gain more business in the individual banking sector by offering new financial products. Among these were the oyako, a 50-year parent-child mortgage, created as a way to deal with skyrocketing land values. The new sales effort also gave rise to an army of bicycle-riding, door-to-door salesmen whose mission it was to canvass every home in Japan in search of business.
Troubles with the bank’s amalgamation were obscured somewhat by the oil crisis of 1973–74. Soon afterwards, however, it was apparent that the merger was not progressing as smoothly as had been anticipated. Dai-Ichi, traditionally government-oriented in its business, was a conservative institution, while the agriculture-oriented Nippon Kangyo adhered to a more progressive philosophy. A dual administrative structure was created that maintained strict parity between “D” men and “K” men in the boardroom and at every level of management. Even in personnel affairs, three centers were created: one for Dai-Ichi people, one for Kangyo people, and one for new recruits.
When Saseba Heavy Industries, a shipbuilder and former Nippon Kangyo client, fell on hard times, the “D” men advocated writing off the account. “K” men appealed for time to set up a government rescue plan. Saseba was saved, but the impatience of the “D” men was clearly not appreciated by the “K” men.
After the merger, DKB experienced very strong growth. It was powerful in both commercial and individual banking and conducted a number of rather off-beat financial services, including the national lottery. More importantly, however, Dai-Ichi Kangyo became the head of a fifth keiretsu (the name given to zaibatsu groups after the war, which means “banking conglomerate”). Like Mitsui, Mitsubishi, Sumitomo, and Fuyo, the Sankin Kai, or Dai-Ichi Kangyo group, had interests in every high-growth sector of Japanese industry. Its clients list included Kawasaki Steel, Kawasaki Heavy Industries, the “KKK” shipping line, Fujitsu, Nippon Kangyo Kakumara Securities, Shiseido, Kobe Steel, Ishikawajima-Harima Heavy Industries, Hitachi, and Isuzu Motors.
Since the establishment of the Mizuho Financial Group, we have strived to create the group’s new brand. Our Brand Statement, “Value Communication,” helps express our brand vision not only to our customers, but also within our group. Value refers to the value that our customers seek, while communication refers to how the Mizuho Financial Group intends to communicate with customers to attain this desired value. “Value Communication” underlines our commitment to doing our utmost to understand our customers ‘ aspirations and provide financial services of the highest quality in order to enhance our customers’ satisfaction and ultimately share their joy. Put simply, we look forward to sharing in the dreams and happiness of our customers.
Shuzo Muramoto was named president of Dai-Ichi Kangyo in 1976. A career Dai-Ichi man, Muramoto was promoted, in part, to maintain the bank’s balance between “D” men and “K” men. He was in many ways a symbol of the bank’s first achievement in consensus management. Muramoto was a highly respected advisor to the government on such matters as industrial strategy, the economy, and trade issues. He tempered factional rivalry in the boardroom and focused the bank’s attention on setting and attaining goals.
DKB also adhered more closely to the progressive philosophy of Kangyo under Muramoto. DKB’s competitors avoided setting up offices in Taiwan in an effort to win favor with the mainland Chinese. DKB, however, actively expanded its presence on the island in the belief that dual contacts would become a great asset as Chinese reunification efforts developed. The bank also began a controversial effort to assist new foreign competitors in Japanese markets. Far from accelerating the loss of domestic business to foreign firms, this policy actually created greater harmony.
After 20 years of export-led growth, Japan’s largest banks were very wealthy. The fear that these banks would exhaust Japan’s supply of investment opportunities and that competition for what remained would become increasingly acute precipitated a general rationalization and restructuring effort in Japanese banking.
Strict finance laws prevented Dai-Ichi Kangyo and other banks from diversifying into many new areas. Clearly, the best prospects for new growth were overseas. While many of DKB’s competitors simply purchased foreign banks, DKB preferred to start its overseas operations from scratch, believing that existing operations often came with unwanted obligations. The one major exception to that rule came in 1980, when DKB purchased the Japan-California Bank (renamed Dai-Ichi Kangyo Bank of California).
Nobuya Hagura, who became president of DKB in 1982, pressed hard for the repeal of Japan’s restrictive finance laws, particularly Article 65 of the Securities Exchange Law. This law, comparable to the Glass-Steagall Act in the United States, prevents banks from engaging in the securities business. Hagura and other bankers insisted that this law was obsolete. Meanwhile, many banks simply purchased foreign dealers. After waiting some time, Dai-Ichi Kangyo finally entered the New York market in 1986, when it started its own company, the Dai-Ichi Kangyo Trust Company, by purchasing $215 million in business loans from the U.S. Trust Company of New York.
Ten years after the merger, the bank was still dealing with its aftereffects. Its dynamism was constrained by commitments to clients in the troubled steel and shipbuilding sectors, as well as by overstaffing; Sumitomo, a smaller but more profitable competitor, maintained several thousand fewer employees. In an effort to diversify, to eliminate underperforming accounts, and to reduce employee rolls, the bank initiated two major reorganizations in five years.
Most of the bank’s goals were met, but the most important change to take place involved the introduction of electronic information services on capital markets. With a 10 percent market share in dealing government bonds, the DKB was gearing up for entry into investment banking.
At this time, the U.S. government dramatically increased its borrowing. This led to a sharp decrease in the value of the dollar. As a result, DKB, with the bulk of its assets in yen, surpassed Citicorp to become the largest bank in the world in 1986. Much of the bank’s growth, however, was attributed to lower interest rates, which increased income from spread lending. By 1987, many of the bank’s investments in foreign operations were beginning to pay off. Most notable were the New York securities subsidiary, a DKB-controlled bank in Hong Kong, and an investment consultancy in London. Still, the company’s greatest assets remained its branch network and prime corporate accounts.
History of the Fuji Bank
The earliest predecessor of the Fuji Bank was established by Zenjiro Yasuda, a young entrepreneur who moved to Tokyo from his native Toyama in 1856. In 1866, he opened a money exchange in Kobunacho called Yasuda Shoten, which dealt in gold, silver, and copper. During this period, Yasuda established ties with the restoration movement, which sought to overthrow the Tokugawa Shogunate. Two years later, when this movement came to power, new laws were enacted to liberalize and modernize the economy.
Yasuda was rewarded for his early support of the new Meiji government in 1874, when he was designated fiscal agent for the Ministry of Justice. The following year, he was placed in charge of finances for the Tochigi prefectural government. Yasuda participated in the formation of the Third National Bank in 1876, and in January 1880 won a charter to form his own bank. Increasingly recognized as a leader in the financial world, Yasuda was appointed as a founding adviser to the Bank of Japan, the country’s first central bank.
- The Nippon Kangyo Bank is established.
- Eiichi Shibusawa launches the Dai-Ichi Kokuritsu Ginko, or First National Bank.
- The Yasuda Bank becomes a limited partnership.
- The Industrial Bank of Japan (IBJ) is created by the Japanese government to supply long-term funding to stagnant industries.
- Yasuda is reorganized as Fuji Bank.
- The IBJ is privatized under the Long Term Credit Bank Law.
- Dai-Ichi merges with Nippon Kangyo to form Dai-Ichi Kangyo Bank.
- The IBJ, Fuji Bank, and Dai-Ichi Kangyo Bank merge to form Mizuho Holdings Inc.
- The company launches a major restructuring plan; operations are reorganized under Mizuho Financial Group Inc.
The Yasuda Bank became a limited partnership in 1893, in accordance with the Commercial Law and Banking Regulations. The bank grew with the Japanese economy and gained increasing access to large industrial accounts. In 1900, it became an unlimited partnership and in 1912 was reincorporated with ¥10 million in capital, representing a fifty-fold increase in just over 30 years. In 1921, Yasuda was murdered by an extortionist at his summer home in Oiso in 1921. He was 82 years old.
As banking became more complex, the Yasuda Bank recognized a need to reinforce its management structure and strengthen its recruitment of talented personnel. In 1922, it began regular recruitment of university graduates and started sending middle managers on training missions in Europe and America.
Between 1890 and 1920, the Japanese economy was frequently thrown into disarray by financial crises born of monetary mismanagement and inadequate regulation. Then, in 1923, Japan suffered a massive earthquake which left the economy in recession. That year, the entire Yasuda financial organization was restructured to rescue banks whose business was most heavily concentrated in the devastated Kanto prefecture.
The bank established two specialty insurance companies and participated in the formation of a trust bank, all bearing the Yasuda name. The Yasuda Bank, meanwhile, absorbed ten smaller banks: Third National, Meiji Commerce, Shinano, Kyoto, One Hundred Thirtieth National, Japan Commerce, Twenty-Second National, Higo, Nemuro, and Kanagawa. As a result of the amalgamation, Yasuda became one of the largest Japanese financial organizations. The bank subsequently absorbed the Ham-mamatsu Commerce Bank in 1924 and the Mori Bank in 1928.
A financial panic in April 1927 caused a massive run on deposits and, until a moratorium was declared, brought many banks to the brink of ruin. Yasuda, however, remained relatively healthy and participated in the formation of the Showa Bank, a rescue bank capitalized at ¥10 million. Showa underwrote the accounts of many troubled banks, but the combined effects of government deflationary policy and world recession in 1929 proved insurmountable. Yasuda’s business also suffered, forcing the bank to adopt emergency consolidation and austerity measures.
During the early 1930s, a group of right-wing officers gained power within the Japanese military. Advocating absolute Japanese suzerainty and economic leadership in Asia, this group put great pressure on moderate forces in industry and government, forcing them to adopt more aggressive policies. In preparation for war, they organized a “quasi-wartime” economy—in effect, a five-year preparation for war.
After a series of incidents which led to the fall of the Hirota government’s cabinet, these militarists installed their own puppet cabinet under a government led by Senjuro Hayashi. Included in that cabinet was Nariaki Ikeda of Mitsui, who was named governor of the Bank of Japan, and Toyotaro Yuki of Yasuda, who was made Finance Minister.
Yasuda supported the militarists, believing that economic domination of Asia would greatly enrich the company and Japan. During the war with China, Yasuda, like other Japanese banks, provided funding for the effort and helped to establish profitable ventures in an effort to reduce Japan’s increasingly cumbersome external trade deficit.
The economic situation deteriorated rapidly after the United States and Britain entered the war against Japan in 1941. The government was compelled to amalgamate hundreds of industries in an effort to raise productivity. In 1943, Yasuda absorbed the Kyoto Ouchi Bank, the Japan Day & Night Bank, and the Japan Trust Bank. The following year, it took over the operations of the Showa Bank. When the war ended in 1945, Yasuda was Japan’s largest bank, with 202 branches and ¥13.9 million in deposits.
Under American occupation, all bank accounts were frozen, new bank notes were introduced, and emergency economic measures were enforced to control shortages. War criminals were purged from Yasuda and other companies, and new industrial laws were passed which outlawed the powerful zaibatsu groups. The Yasuda Bank was substantially reduced in size and refitted to operate as a common city bank. Its holdings in other Yasuda companies were eliminated and all the Yasuda companies were forced to change their names.
The Yasuda Bank emerged from two years of transformation in 1948 under the name Fuji Bank, a name chosen by its employees. While in 1945 the Yasuda family and holding company had controlled 39 percent of the bank’s shares, by 1949 even the largest shareholder accounted for no more than 1 percent.
Operating under restrictive new laws, the bank was forced to rebuild its operations almost from scratch. It abandoned leadership by a few men in favor of a presidential form of management under Seiji Sako and also adopted a new logo: the bank’s three pillars—shareholders, customers, and employees—enclosed by a circle, the symbol of money.
The Reconstruction Finance Bank (which helped to rebuild Japan’s economy, but which also contributed to inflation) was dissolved in 1948, leaving new markets open to the city banks. In addition, industrial laws were relaxed in 1949 and again in 1952. Many companies, including former Yasuda companies, reverted to their prewar names. The Fuji Bank kept its new name but took advantage of the liberalized environment by re-establishing ties with its former affiliates. The bank restored business contacts and cross-ownership of stock with former zaibatsu affiliates, including Yasuda Mutual Life and Yasuda Fire & Marine Insurance.
Having regained some of the advantages it enjoyed before the war, Fuji was better placed than many of its rivals to rebuild its banking empire. By taking advantage of the high savings rate in Japan, Fuji recycled capital from individuals into promising export-oriented industries. As Japanese industry matured, Fuji developed a stronger presence in industrial finance and in some instances wielded enough influence to win seats on the boards of high-growth client companies.
During Japan’s first period of industrial growth (1955–65), Fuji succeeded in winning back much of its prewar influence. It was not Japan’s largest or most important bank, but it did gain a reputation as a keiretsu, or banking conglomerate, similar to the old zaibatsu combines.
Fuji began an aggressive international expansion during the 1950s, mostly by following clients into important export markets. Under the leadership of Toshi Kaneko, who succeeded Sako as president in 1957, Fuji began to assemble a zaibatsu- like organization. The Fuyo group, as it later became known, consisted of several companies involved in basic industries including shipping, trading, electronics, and steel and chemical production. The Fuyo group was created largely in order to protect the markets of non-zaibatsu companies against former zaibatsu that had begun to reassemble as diversified conglomerates. Major threats were Mitsubishi, Mitsui, Sumitomo, and C. Itoh, all of which operated diverse interests through an efficient worldwide trading network.
The Fuyo group developed much of its identity during the 1960s, when Yoshizane Iwasa, who succeeded Kaneko in 1963, was president of Fuji Bank. Some of the group’s major members were Hitachi, Nissan, Canon, and Showa Denko, in addition to the new Yasuda companies. All were associated with Marubeni, a general trading company once associated with Yasuda’s rival, the Sumitomo zaibatsu.
The Fuyo members were major clients of the Fuji Bank. As such, they were also the bank’s primary vehicles of investment; their successes (and failures) were often reflected in the bank’s financial statements. True to the spirit of Zenjiro Yasuda, the Fuji Bank oversaw costly rescues of troubled firms, a phenomenon virtually unknown outside Japan. The rescues were intended to demonstrate to other clients the bank’s dedication to their businesses. However, virtually all of the Fuji Bank’s customers were highly successful, which helped the bank emerge in the 1970s as one of Japan’s most influential financial organizations.
With establishment of the London-based Japan International Bank in 1970, Fuji became directly involved in European money markets. The bank set up subsidiaries in Australia in 1971 and in Switzerland, Hong Kong, and Singapore in 1972. One area of particular interest for Fuji was investment banking. Japanese financial regulations, however, prevented city banks from performing non-bank activities. In the less-regulated overseas markets, Fuji was free to pursue whatever businesses local laws would allow. Fuji therefore formed Fuji Kleinwort Benson, a joint venture with the British investment bank Kleinwort Benson’s Chicago-based securities brokerage, Kleinwort Benson Government Securities, in 1973. In 1977, Fuji increased its interest in this company to 70 percent and changed its name to Fuji International Finance. Fuji also established Fuji Bank & Trust in New York in 1974 as a way of entering the trust business.
Kunihiko Sasaki, who led the company from 1971 to 1975, is credited with steering the bank through the difficult years of the energy crisis. Because Japan was totally dependent on foreign oil, the country’s basic industries, including those within the Fuyo group, were severely affected. At the same time, the crisis created similar adversities in export markets and demand for Japanese products remained high. Production slowed temporarily while markets adjusted to a new economic order. The latter half of the decade was marked by a strong recovery and expansion in the automobile sector, where Nissan was a major manufacturer.
Fuji forecasted a gradual decline in the rate of growth in the domestic economy many years before it occurred. It continued to take advantage of promising opportunities in the international market, thereby protecting itself against over-concentration in one market.
Under Takuji Matsuzawa, promoted from president to chairman in 1981, and Yoshiro Araki, who replaced him as president, Fuji purchased the financial subsidiaries of the Chicago-based Walter E. Heller International Corporation for $425 million in 1983. The acquisition gave Fuji an established client list and demonstrated the bank’s growing commitment to American financial markets. It also promised to win Fuji greater participation in syndicated loans, an activity that was virtually monopolized by larger American banks. In 1986, Fuji made an additional $300 million investment in Heller to strengthen the company’s business structure.
Araki, an outspoken advocate of financial deregulation in Japan, was promoted to chairman in 1987. He was replaced as president by Tanzo Hashida. Under these two men, Fuji made its first direct challenge to U.S. securities laws when it attempted to take over its joint venture partner Kleinwort Benson Government Securities.
The U.S. Government opposed the takeover because Klein-wort Benson was a primary dealer of treasury securities, and control of such institutions was legally denied to foreign companies. In a compromise, Fuji was allowed to purchase a 24.9 percent share of Kleinwort Benson for $39.5 million. While it gave Fuji a far smaller stake than it had originally planned, it also discouraged hostile takeovers of Kleinwort Benson until U.S. securities laws were altered and Fuji could complete the acquisition.
Fuji’s international division performed outstandingly during the 1980s and reported consistently increasing rates of growth. Domestic business, while representing a smaller share of total business, remained stable and strong. As a kind of coordinating body for the Fuyo group, Fuji entered the 1990s as a major international bank and leading member of one of Japan’s most powerful industrial organizations.
The History of Industrial Bank of Japan
The Industrial Bank of Japan, or IBJ, was created by the Japanese government shortly after the Sino-Japanese War (1894–95). Only 25 years before, Japan had ended a centuries-old isolation and embarked on an ambitious modernization. However, Japanese industry required inexpensive and reliable sources of raw materials. China held great promise, not only for Japan but for several other imperialist powers, because of its vast forestry and mineral resources.
As a result of its war with China, Japan won rights to these resources in addition to substantial war-reparation payments. The Japanese government studied ways to manage these payments most efficiently and created three development banks. In 1902, it chartered the Kangyo Bank for agricultural finance, the Hokkaido Takushoku Bank for the development of Japan’s northernmost island, Hokkaido, and the Industrial Bank of Japan to supply stagnant domestic industries with long-term funding and to develop the bond market.
The Russo-Japanese War (1904–05) was Japan’s first engagement with a European power. Its victory in that war greatly increased Japanese influence in the region, but the mobilization seriously depleted bank capital. With Japanese industries unable to finance further expansion, the IBJ borrowed heavily from European sources to make capital available to Japanese industry for modernization and expansion.
The IBJ grew with Japanese industry throughout the 1920s and 1930s by financing the construction of integrated steel mills and modern shipyards. As an instrument of government, the IBJ was motivated neither by private interest nor private profit.
A right-wing militarist element, which by the mid-193Os had gained control of the government, sought to establish Japanese supremacy in Asia. Opposed at first by political moderates and Japanese industrialists, the militarists eventually won power. By the time the government declared a “quasi-wartime economy” in the late 1930s, the zaibatsu, or large “money clique” conglomerates, participated in the mobilization—as much for profit as for political survival.
With the zaibatsu brought under the same strict central control as agencies like the IBJ, the Japanese economy was forcibly concentrated in order to raise economic efficiency. While commercial businesses concentrated on military production and the development of occupied territories, the IBJ became involved with the increasingly burdensome task of financing the war against China and later against the United States; during this time, the bank’s debts increased from ¥2.7 billion to ¥14.6 billion.
The IBJ survived relatively intact. Instead of financing industrial expansion, however, its new task under the occupation was to assist in the reconstruction of Japan. The bank created a special reconstruction-finance department staffed by 96 men. The department was separated from the IBJ in 1947 and named the Nippon Fukokin Kinyu Koku, or Japan Reconstruction Finance Bank, and reorganized in 1952 as the Japan Development Bank.
The American occupation authority undertook a massive decentralization of the Japanese economy by breaking up the zaibatsu and forcing the government to make state-owned businesses, including the IBJ, private. Under the Long Term Credit Bank Law, the IBJ was sold to private investors in 1950. Its purpose, however, remained the same: to provide long-term funding for stagnant and undercapitalized firms. The bank continued to serve in a semiofficial capacity and maintained its connections in government and its access to key ministries and agencies.
Japan’s industrial sector, which the IBJ had concentrated on developing for over 50 years, finally began to mature in the early 1950s. For nearly 20 years, the Japanese economy maintained an annual growth rate of 10 percent, which provided the IBJ and other long-term credit banks with strong and stable development. As the largest issuer of government and corporate bonds, in addition to its own debentures, the IBJ held tremendous sway over the determination of long-term interest rates.
The appearance of IBJ representatives on the boards of its clients became more conspicuous after the securities crisis of 1966. The IBJ appointed presidents to three of the four major securities houses: Yamaichi, Daiwa, and Nikko, and played a major role in the creation of Nippon Steel, the world’s largest steel company, through the merger of Yawata Steel and Fuji Steel in 1970.
Japanese industry, which depended heavily on imported raw materials, was dealt a severe blow during the 1973 oil crisis. Many of the IBJ’s largest clients were suddenly faced with drastically weakened markets and even bankruptcy. In the recession that followed, capital investment was either scaled down or canceled altogether. As interest rates rose, the bank’s clients paid back much of their debt by liquidating assets or arranging their own financing—either taking their business back from the IBJ or seeking financing in less competitive foreign-loan and bond markets. Within Japan, IBJ debentures suffered from the developing gensaki bond-repurchase market and an increasingly sophisticated Tokyo stock market.
Threatened with the possibility of its own redundancy in several important markets, IBJ altered its business strategy. The research department sorted IBJ’s existing and potential clients into those that were successful, those that needed reorganization, and those that should be abandoned. The IBJ became more active in its clients’ industries and, with the full support of the Japanese government, remade several businesses. Not surprisingly, at times the IBJ was resented for the ruthlessness of its reorganization schemes and criticized for the arrogant and presumptuous manner in which its representatives presided over clients’ board meetings.
Nevertheless, several troubled companies, including Toyo Soda, Nippon Soda, the Keisei Electric Railway, and Chisso Chemical were successfully rehabilitated. For that reason, many regarded a loan from the IBJ as an insurance policy. Competitors made similar industrial rescues but often lost hundreds of millions of yen in the process. The IBJ, on the other hand, made a profit from saving companies.
One of the largest projects to be underwritten by the IBJ was a $3.2 billion petrochemical complex at Bandar-e-Shapur (later Bandar Khomeini) in Iran. Iranian revolutionaries halted construction on the plant in the early 1980s, when it was 80 percent finished, because they regarded Japan as too sympathetic to the United States. The plant was later bombed by Iraqi jets, leaving its eventual completion in doubt.
Although a late entrant into international finance, receiving permission to establish overseas branches only in 1971, the IBJ was nevertheless quick to notice a weakening in the Third World lending market. In 1983, the bank refused to lend money to the Philippines in anticipation of a credit crisis, which duly materialized a few months later. The IBJ did not, however, shun all investment in developing countries; it simply managed its risk differently. Unlike many of its competitors, it chose to participate in specific projects rather than lend outright to government sponsors.
Careful risk management, in addition to a statutory right to finance itself with more stable long-term debentures, earned the IBJ a successful entrance into European financial markets, allowing it to become a major player in the securities industry. The IBJ remained a lead banker to about 180 of Japan’s top 200 firms, marketing both yen-dominated bonds and Japanese government securities.
Much of the credit for the IBJ’s recovery from the crisis of the 1970s went to Kisaburo Ikeura. President of the bank from 1974 to 1983, Ikeura was replaced as president by Kaneo Nakamura but continued to serve as chairman. One question facing Nakamura was whether or not to expand into the more stable but highly competitive consumer-banking market. Because it suffered from a lack of branches, any growth in this area would have had to come externally—that is, by acquisition. Instead, the IBJ decided to expand in international securities markets.
The IBJ already occupied an important position in European markets with an English subsidiary, IBJ International, and the Industrial Bank of Japan (Switzerland), which conducted both banking and securities services. The IBJ expanded into the United States by purchasing, through subsidiaries, Aubrey G. Lanston Company, an important dealer in U.S. government securities. Although the U.S. government preserved management control of Lanston, the IBJ gained a “ringside seat” at the Federal Reserve.
The IBJ’s broad exposure to international markets made it more sensitive to changes in the value of the yen. Its emphasis on long-term credit, however, brought much of that risk to within acceptable margins. While it competed with the Long Term Credit Bank and the Bank of Tokyo, the IBJ established and (with government help, some say) protected an important niche in the institutional banking and securities markets. In addition, the IBJ had to compete in an increasingly less protectionist international environment. This resulted in a lower, though not altogether unpredictable, squeeze on growth rates and profits.
Industry Problems Lead to the Creation ofMizuho
By the 1990s, Japan’s banks—including Dai-Ichi, Fuji Bank, and the IBJ—faced a host of problems brought on by Japan’s deteriorating economy and exposure to non-performing, or bad, loans. In the 1970s, housing loan companies were established in Japan by commercial banks to handle residential mortgage lending, a business service that a bank could not provide. During the 1980s, however, Japan began changing its laws, which allowed banks to offer mortgage lending themselves. To deal with the changing laws, the housing loan companies sought out the commercial real estate market during the 1980s and began lending at breakneck speed. When the Japanese property market collapsed in the late 1980s, housing loan companies and the major commercial banks that funded them were left with large amounts of bad loans. In fact, in 1994 the Financial Times reported that nearly 60 percent of housing company loans in Japan were bad.
At the same time, Japan’s economy was faltering, leaving many companies in the retail, distribution, construction, and real estate industries unable to pay back loans. As such, Japan began to restructure its financial sector in an attempt to get its major banks back on track. Japan’s largest banks began to feel pressure from the Financial Reconstruction Commission (FRC), an agency that pushed Japan’s largest banks to merge and form business alliances. The FRC also began to lay the groundwork for new banking regulations. This reform included revamping the Japanese banking industry to reduce or eliminate bank exposure to bad loans. The initiative was in part overseen by Japan’s Financial Services Agency (FSA). Just as the FSA reported that the major banks were financially sound, however, Japan’s four largest banks reported a combined loss of $22.7 billion in 2002. In September of that year, Prime Minister Junichiro Koizumi fired his chief bank regulator and named Heizo Takenaka to the post. An October 2002 Business Week article claimed that Takenaka felt that the banking system in Japan was “gravely ill and needing treatment.” As such, Takenaka immediately set a plan in motion to audit the major banks loan portfolios. At the time, these banks’ bad loans were estimated at $430 billion, a figure that was considered to be significantly below the actual number.
Meanwhile, Dai-Ichi and Fuji Bank, had struggled during the 1990s to overcome obstacles brought on by the financial crisis. The IBJ, on the other hand, had weathered the storm fairly well as a long-term credit bank. Its future was uncertain, however, due to a downturn in corporate borrowing and new laws that threatened to allow all banks—not just long-term credit banks—the right to issue financial bonds, which would leave the IBJ subject to increased competition. As such, consolidation appealed to all three banks and thus paved the way for a major union between them. A 1999 The Banker article explained that the deal was “expected to reshape the face of Japanese banking” by prompting “rival banks to explore tie-ups with each other.” Management of the three banks announced the planned merger in 1999, believing the alliance would create one of the largest financial services concerns in the world. While the joining of Dai-Ichi, Fuji Bank, and the IBJ did create a banking powerhouse, the integration of the companies proved to be quite problematic.
Mizuho Holdings Inc. was born out of the September 2000 merger and operated for a short time as the world’s largest bank, with assets topping out at $1.2 trillion—Citigroup surpassed Mizuho in 2003. In April 2002, the operations of Dai-Ichi, Fuji Bank, and the IBJ were consolidated into Mizuho Bank and Mizuho Corporate Bank, while the securities and trust operations were folded into Mizuho Securities and Mizuho Trust & Banking. The choice of Mizuho, meaning “a fresh harvest of rice,” for a corporate moniker signaled the company’s underlying strategy of making a fresh start in the banking industry. Nagging problems, however, bogged down the firm’s efforts.
Integrating the three banks computer systems proved to be challenging, and in April 2002 a major computer glitch caused errors in withdrawals and cash transfers. Over 7,000 Mizuho automated teller machines were left useless. To top it off, bad loans continued to plague the new company. Management scrambled to realign itself and in December of that year announced a major reorganization plan that included job cuts, branch closures, and the formation of a new holding company. In March 2003, Mizuho Financial Group Inc. made its debut and was structured to increase profitability, bolster competitiveness, and aid in the continual integration of the three banks. Mizuho’s success in the years to come was contingent not only on its ability to overcome internal problems but also on Japan’s capacity to restructure and bring its banking industry back to health.
Mizuho Holdings Inc.; Mizuho Bank Ltd.; Mizuho Corporate Bank Ltd.; Mizuho Investors Securities Co. Ltd.; Mizuho Securities Co. Ltd.; Shinko Securities Co. Ltd.; Mizuho Trust and Banking Co. Ltd.; Trust and Custody Services Bank Ltd.; Dai- Ichi Kangyo Asset Management Co. Ltd.; Fuji Investment Management Co. Ltd.; DLIBJ Asset Management Co. Ltd.; UC Card Co. Ltd.; Mizuho Research Institute; DKB Information Systems Inc.; Fuji Research Institute Corp.; IBJ Systems Ltd.; Mizuho Capital Co. Ltd.
Mitsubishi Tokyo Financial Group Inc.; Sumitomo Mitsui Banking Corp.; UFJ Holdings Inc.
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—update: Christina M. Stansell