The Sumitomo Bank, Ltd.
The Sumitomo Bank, Ltd.
Assets: ¥45.08 trillion (US$360.7 billion)
Stock Index: Tokyo Osaka Nagoya Paris London
Once the banking division of one of Japan’s largest and oldest zaibatsu conglomerates, the Sumitomo Bank today is one of the most-highly valued companies in the world. It is also characterized by an obsession for becoming Japan’s largest bank, displacing such formidable competitors as Dai-Ichi Kangyo and the Fuji Bank. Sumitomo is the central coordinating body for the now-independent but former zaibatsu members of the Sumitomo group and has assumed the new identity of keiretsu (banking conglomerate).
The Sumitomo group of enterprises is one of the oldest surviving business entities in the world, dating to the early 1600s. Sumitomo was originally founded near Kyoto as a medicine and book shop. The discovery by a family member of a new method for copper smelting led the company into the expanding and highly profitable copper trade. The acquisition and development of large copper mines had made Sumitomo one of Japan’s largest companies by 1868, when battling clans restored the Meiji emperor to power.
Although Sumitomo supported the losing side in that struggle, the company managed to develop good relations with the new government and later purchased some state enterprises as part of a national modernization campaign. As the company grew, Sumitomo’s director general, Teigo Iba, advocated diversification into new fields of business. Flush with money from Sumitomo’s copper operation, Iba set up a banking division in 1895 called the Sumitomo Bank.
Acting as the private banker for the ever-expanding Sumitomo enterprises, the Sumitomo Bank experienced smooth and rapid growth. In 1912, in need of further capital, the bank was incorporated and made a share offering. In doing so it became the first Sumitomo division to go public. Between 1916 and 1918 the bank established branch offices in San Francisco, Shanghai, Bombay, New York, and London, and an affiliate, the Sumitomo Bank of Hawaii.
Japan emerged as a major world power following its victory in the Russo-Japanese War in 1905 and, later, after World War I. This new prestige afforded companies like Sumitomo new business opportunities throughout Asia as Japan became a colonial power on par with Great Britain, the United States, the Netherlands, and France. The Sumitomo Bank established an interest everywhere the Sumitomo group went—Korea, Formosa (Taiwan), and China.
The Sumitomo Bank spun off a division of its own in 1923, when its warehousing arm was incorporated as the Sumitomo Warehouse Company. Two years later the Sumitomo group broadened its financial activities by taking over the management of Hinode Life Insurance, which was renamed Sumitomo Life Insurance the following year. Despite the creation of separate Sumitomo corporations—Sumitomo Machinery Works, Sumitomo Fertilizer Works, Sumitomo Mining, and so on—the Sumitomo group remained a closely knit conglomerate called a zaibatsu (literally, a “money clique”) whose constituent companies owned collective majorities of shares in each other.
The power of the various zaibatsu was greatly resented by a quasi-fascist element in the military that rose to power during the 1930s. Advocating Japanese supremacy in Asia as well as a more equitable distribution of wealth, these militarists were bent on the eventual nationalization of the zaibatsu. But because the zaibatsu made up Japan’s military-industrial complex, they were essential to the militarists’ plans for conquest.
The zaibatsu were uncomfortable in their cooperation with the militarists: they stood to profit from Japan’s expansion, but they also faced disintegration if the plan worked. Nonetheless, the Sumitomo Bank helped to finance the military’s preparation for combat. Many Japanese considered the war a patriotic cause, seeking to remove western imperialists from Asia. But most Japanese companies, regardless of their reservations, were treated according to their cooperation with the militarists after World War II, and the Sumitomo companies were no exception.
Despite the militarists’ desires, the Sumitomo group, having taken over a number of formerly independent or associated companies, became larger and more concentrated as a result of the war. After the war the Allied occupation authority imposed a series of antimonopoly laws that broke the zaibatsu into hundreds and even thousands of smaller companies. Each was forbidden to use its prewar name or to engage in cross-ownership of stock. The Sumitomo Bank was reorganized under this plan in 1948 as the Bank of Osaka.
A relaxation in industrial laws in 1949, and again in 1952, permitted the former Sumitomo companies not only to conduct business with each other, but also to resume use of the Sumitomo name and cross-ownership of stock. The zaibatsu re-formed, and the Sumitomo Bank became its coordinating entity.
The man placed in charge of the company after the war was Shozo Hotta, who believed that the bank should differentiate itself from other banks by emphasizing business efficiency. He also personally evaluated business ventures that he felt the Sumitomo Bank should back. As the bank grew during the 1950s, it became better able to support larger industrial ventures such as Matsushita Electric, Toyo Kogyo, and Daishowa Paper. Many of these investments were highly successful, particularly the Matsushita venture. During Japan’s first period of export-led growth, from 1955 to 1965, Matsushita grew several times over to become the nation’s largest electronics manufacturer.
Adopting the new goal of “quality and quantity,” the Sumitomo Bank expanded its corporate business, recognizing the diminishing opportunities for growth from its historical affiliates such as NEC, Matsushita, and other Sumitomo companies. In addition, much of the bank’s business was concentrated in the Kansai area around Osaka, leaving Tokyo and Yokohama, both rapidly growing markets, largely unexploited by Sumitomo.
In a separate effort to expand, the Sumitomo Bank merged with the Kawachi Bank in April, 1965. Retaining the Sumitomo name, the banks’ combined deposits surpassed those of their competitor, Fuji Bank.
Hotta was named chairman of the bank in 1971, when he was replaced as president by Koji Asai. Asai and his successor, Kyonosuke Ibe, each had a comparatively short tenure, Ibe being replaced by Ichiro Isoda. Although Hotta was removed from the day-to-day administration of the bank, the organization strongly reflected his personality: bureaucratic and authoritarian. Often described as the father of the restoration of the Sumitomo Bank, Hotta had nevertheless created for it a poor public image, which Isoda was determined to change.
Higher earnings permitted the bank to increase lending to Matsushita, Toyo Kogyo, and Daishowa, as well as to companies outside the Sumitomo group like Idemitsu Kosan, Uraga Dock Company, Taisho Pharmaceutical, and Ataka & Company. Again, many of these investments were highly profitable. Those to Ataka, Daishowa, Uraga, and Toyo Kogyo, however, were not. Toyo Kogyo, in particular, was in very serious condition. The manufacturer of Mazda trucks, Toyo Kogyo had bet its future on the success of the Wankel rotary engine, a prewar German design that was supposed to be highly fuel efficient. It proved otherwise, and became a costly problem for Toyo Kogyo, especially in combination with the 1973-1974 oil crisis. Sumitomo nevertheless supported Toyo Kogyo during its reorganization.
More serious, however, was the impending failure of Ataka & Company, a major Japanese trading firm. Because it stood to lose substantial amounts of money if Ataka went bankrupt, the Sumitomo Bank pledged to support Ataka until it could again be made solvent. Hotta entrusted Isoda with responsibility for rehabilitating Ataka. Isoda in turn appointed Yasushi Komatsu, managing director of the bank, to head Ataka. A more outgoing, congenial man than Hotta, Isoda enlisted help from the Ministry of Finance, the Bank of Japan, Ataka’s customers, and even competitors of the Sumitomo Bank. Under a coordinated effort, Ataka was completely restructured; its unprofitable and underperforming divisions were sold off and cost-cutting procedures were initiated for those that remained. A year after assuming control over Ataka, the bank arranged a merger with C. Itoh, Japan’s largest general trading company.
The Sumitomo Bank’s handling of the Toyo Kogyo and Ataka affairs greatly enhanced its image among business and government leaders, as well as with the public. The bank’s character changed at a crucial time, as the Japanese economy was entering a period of stable growth. A buyer’s market emerged in banking, and with little remaining room for growth, each bank was forced to compete vigorously for market share. Had Isoda tried to cut losses by permitting both companies to go bankrupt, the bank would almost certainly have lost major clients to competitors. Instead, Sumitomo demonstrated an unusual degree of dedication to its customers and won more confidence than any advertising campaign could have hoped to generate.
The company’s ability to support its clients through hard economic times was tested in the late 1970s when the industrial base in Kansai began to deteriorate. The textile industry, long in a state of decline in Japan, finally felt the effects of cheaper foreign competition. Within the Sumitomo group, business was down for Sumitomo Light Metals, Sumitomo Cement, Sumitomo Metal, and Sumitomo Chemical.
Still, by this time, the Sumitomo Bank had become Japan’s largest bank in terms of deposits. That position was later lost, however, not due to a failure in business, but due to the merger of the Dai-Ichi Bank and the Kangyo Bank. A similar merger between Sumitomo and the Kansai Sogo Bank was cancelled in 1978 because the resulting bank would have been too deeply influenced by the Kansai economy.
In 1979 the Sumitomo Bank carried out a general reorganization on the recommendations of the American consulting firm MacKenzie & Company. The bank was divided into four divisions: business, sales, international, and planning and administration. In addition, greater freedom was given to division heads in order to achieve greater decentralization.
Isoda ordered the expansion of international financial services and the establishment of an in-house securities business. Toward that end, Sumitomo purchased the Swiss Banca de Gottardo in February, 1984, and later became the leading Japanese bank in foreign markets.
Isoda became chairman in 1983, when he was replaced as president by Koh Komatsu, an imaginative manager who had distinguished himself during the 1960s by rehabilitating Sumitomo’s operations in California.
In 1986, observing Citicorp’s experience with bank competition in the United States, Komatsu decided that Sumitomo needed to diversify its customer base geographically. Having made little progress moving into Tokyo, the bank proposed a merger with an established institution in the region. The partner bank eventually settled upon was the Heiwa Sogo Bank, an institution with about 100 branches that operated until 7:00 p.m. —four hours later than other banks.
Sumitomo, already an established leader in international banking and finance, announced in December, 1986 that it had made a $430 million, or 25%, investment in the New York-based investment bank Goldman Sachs. The investment, which amounted to a controlling interest, greatly alarmed American banks, which charged that a foreign competitor had been permitted to enter a field the Glass-Steagall Act had barred American banks themselves from. The Federal Reserve later ruled that Sumitomo’s investment was legal, but that Sumitomo could not increase its interest, exercise management rights, or expand to other countries.
Trouble came for Komatsu the following year, when reports of friction among bank divisions and depressed earnings led the board of directors to replace him as president with Sotoo Tatsumi. The new president pledged to remove excessive layers of bureaucracy that had recently compromised the bank’s reputed speed and efficiency. Emphasizing a new competitive spirit, Tatsumi was charged with consolidating the gains made under Komatsu, to rationalize the company’s busy expansion of the previous year.
The bank has relatively few problems that are beyond its control. It is sufficiently diversified, operationally and geographically, both within Japan and internationally, to withstand downturns in specific industry sectors. It not only remains the primary source of funds for the Sumitomo group, but has established itself as a major force in international finance. Deregulation and consolidation of the Japanese banking industry will pose challenges for Sumitomo in the future, but its foundation seems more than sturdy enough to adapt profitably to change.
Sumitomo Bank of California (U.S.A.); San Francisco International Banking Division (U.S.A.); Los Angeles International Banking Division (U.S.A.); Banco Sumitomo Brasileiro S.A. (Brazil); Sumitomo Finance Overseas, S.A. (Panama); Central Pacific Bank (U.S.A.); Sumitomo Bank of New York Trust Co. (U.S.A.); Sumitomo Bank Capital Markets (U.S.A.); Sumitomo Bank of Canada; Sumitomo Finance International (U.K.); Sumitomo International Finance A.G. (Switzerland); Banca del Gottardo (Switzerland); Sumitomo Finance (Middle East) E.C. (Bahrain); Sumitomo Bank (Deutschland) GmbH; Japan International Bank Ltd. (U.K.); B.S.F.E.—Banque de la Societe Financiere Europeenne (France); Sumitomo Finance (Asia), Ltd. (Hong Kong); China International Finance Co. Ltd.; Sumitomo International Finance Australia Limited; Sumitomo Financial Futures (Singapore) Pte. Ltd.; P.T. BEII General Leasing Company (Indonesia); P.T. Merchant Investment Corp. (Indonesia); BBMB Leasing Berhad (Malaysia).