The Tokai Bank, Ltd.
The Tokai Bank, Ltd.
The Tokai Bank is one of the leading commercial banks in Japan. Based in Nagoya, it is the dominant bank in the Chukyo region of central Japan, where Toyota, among other companies, is based. The product of a wartime amalgamation, Tokai has since survived numerous reorganizations of the banking industry and has successfully established a presence in Japan’s leading financial centers, Tokyo and Osaka.
The Tokai Bank was established in 1941, approximately six months before Japan entered World War II but in the midst of Japan’s war with China. At that time the Japanese government was dominated by a military group that had ordered the concentration of several industries in an effort to raise economic efficiency. As part of that initiative, three small banks in Nagoya—the Aichi Bank, the Nagoya Bank, and the Ito Bank—were merged. Each had been in existence for many years. The oldest, the Aichi Bank, was founded in 1877 as the Eleventh National Bank.
The three banks were roughly equal in size. Because they all wanted to make a break with their troubled pasts as small local banks, they adopted a different name for the new bank: Tokai, Japanese for “East Sea.” The East Sea, or Sea of Japan, was at the time a rich source of food and the main conduit between Japan and its colonies and conquests on the Asian mainland.
The Tokai Bank never got an opportunity to participate in any large wartime development projects, however, but instead was forced into defensive measures and spent much of the war issuing debt.
When the war ended in 1945, the occupation authority laid plans for the postwar banking industry and initiated purges of managers suspected of aiding the war effort. The Tokai Bank was deemed the appropriate size for a regional bank, and, because it had not contributed significantly to the war effort, was permitted to keep its management and to retain its name. In 1947 Tokai was awarded a foreign exchange license, greatly improving its clout. The following year, under the Reconstruction and Reorganization Act, it was permitted to increase its capitalization to ¥435 million—a substantial increase in size.
During the 1950s, Tokai was given de facto responsibility for aiding recovery in Chukyo prefecture. Because Japan’s Ministry of International Trade and Industry had set broad and ambitious goals, the bank had a great deal of work to do. The completion of large plants required tremendous amounts of capital and long lead times that often exceeded the bank’s capacity. Nagoya, however, grew steadily during this period and savings rates remained high. By the mid-1950s, as some of the bank’s client projects came on line, margins were greatly improved.
Dedicated to offering the highest degree of service in a relatively unsophisticated market, Tokai inaugurated checking accounts in 1960. The bank had also developed a successful trust business. In 1962, however, Tokai became obligated under financial regulations to separate this business from its regular operations and in the process founded the Chuo Trust & Banking Company. Tokai began loan services in 1963, started the country’s first on-line money-order system in 1965, and in 1968 opened a foreign trade information center, whose aim was to assist in marketing financial opportunities overseas.
Once it had successfully expanded its offices in Tokyo and Osaka, Tokai began to look overseas. The bank opened its first overseas branch, in London, in 1963, partially in an effort to assist Japanese export firms in European markets but mostly to gain representation in a major world capital. A New York office, established in 1954, was upgraded to a branch in 1965.
As Japan entered its second period of industrial growth in the mid-1960s, Tokai’s location gained greater significance. Situated midway between Tokyo and Osaka, Nagoya had grown into a major industrial region, and Tokai was the only major bank with its head office there. It naturally had the strongest relationships with local government and businesses, and therefore became the most important economic intermediary in the region.
Tokai gained even greater significance in the early 1970s as domestic demand in basic industries began to show the first signs of saturation. Equally important were preparations for an ambitious export drive being made by leading manufacturers and trading companies. In order to maintain its position in the region, Tokai started to emphasize international expansion. Additional offices were opened in Los Angeles, Amsterdam, Hong Kong, Zurich, Sydney, and Singapore, and the foreign-trade information center was upgraded to include investment activities.
Tokai’s most important customer during this period was undoubtedly the Toyota Motor Corporation, which became Tokai’s largest shareholder. Toyota’s tremendous sales, particularly in the United States, created numerous expansion opportunities for both the company and the bank. But, although both companies were closely associated with other firms, they fell short of creating an industrial group similar to the Dai-Ichi Kangyo, Sumitomo, or Mitsubishi groups. Tokai had cultivated important relationships with many companies associated with otherwise rival industrial groups, but it was simply not in its interest to become involved in such an industrial group.
Tokai pursued its expansion in international markets into the 1980s by opening a branch in Chicago and offices in Atlanta; Dallas; Lexington, Kentucky; and other places. As part of its expansion, Tokai established subsidiaries in North America, including the Tokai Bank of California, the Tokai Trust Company of New York, and the Tokai Bank of Canada.
The trust operation in New York allowed Tokai to begin building its expertise in trust banking, an activity it is not chartered to perform in Japan. The rapid liberalization of financial regulations in Japan, however, virtually ensures that one day soon institutions such as Tokai will be permitted to engage in trust banking, insurance, and securities underwriting.
Tokai undertook a reorganization in 1988 that resulted in the creation of a treasury and capital market group and a corporate planning group. These new groups are intended to enhance the bank’s ability to manage information in bond and other securities markets and assist client corporations in developing sound business strategies.
While working to develop capabilities in a broader range of activities, Tokai has recently concentrated on consolidating its position with middle-market corporations, offering these companies services that were once available only to large corporations. As a result, the bank has become exceedingly popular in that sector, which makes up a growing share of Tokai’s business.
In foreign markets, Tokai has seized an opportunity to work with non-Japanese clients in such areas as leveraged buyouts, corporate restructuring, and large-scale real estate development projects. While these are higher-risk activities than Tokai has been accustomed to undertaking in Japan, they are also normally fee-based, and therefore are somewhat more stable undertakings.
Tokai’s immediate goals include consolidating reliable profit centers like retail banking while developing a more complete range of financial services. Because Tokai is already associated with companies involved in these services—including Chiyoda Mutual and Nippon Life Insurance—it stands a good chance of succeeding when Japan’s financial markets are fully liberalized.
Tokai Bank of California; Tokai Bank Nederland N.V.; Tokai Asia Ltd. (Hong Kong); Tokai International Ltd. (U.K.); Tokai Finance (Switzerland) Ltd.; Tokai Australia Finance Coporation Ltd.; Tokai Financial Futures (Singapore) Pte Ltd.; Tokai Trust Co. of New York; Tokai Bank Canada; Tokai Leasing (Deutschland) GmbH (West Germany); Tokai Credit Corporation; Master Lease Corporation; Tokai Securities, Inc.; P.T. Tokai Lippo Bank.