JEI's Spin on the News

Sumitomo Trust and Long-Term Credit Bank Said To Be Close To Merger

Friaday, June 26, 1998

Long-Term Credit Bank of Japan and Sumitomo Trust & Banking Co. have admitted that they may merge. For beleaguered LTCB. the announcement ends for now speculation as to whether the bank, whose stock price has plummeted in recent weeks, would go out of business or combine with another financial institution. Analysts said that whether the merger goes through and under what terms apparently depends in part on what Tokyo comes up with in the next month or so in the way of mechanisms to deal with failed financial institutions.

In one respect the merger would be good fit. Both banks are included in the ranks of Japan's 18 largest banks that operate nationwide, but they have traditionally operated in different industry segments. By combining they will be able to offer a range of banking services that comes closer to being one-stop shopping. By most accounts, LTCB is larger, but Sumitomo Trust appears more profitable.

By itself, the merger does not wipe a single bad loan off the books. Sumitomo Trust's expectation seems to be that it will pick whatever parts of LTCB it wants and leave the rest for the government to clean up.

In contrast with the merger proposals pending in the United States involving Bank of America, for example, which has the potential to lead to qualitative changes in the way America banks, the proposed Japanese combination is much narrower in scope and largely defensive.

The bad loan problems of Japanese banks will be a subject of a JEI Report to be published July 3. A recent Economic Strategy Institute report, "A Cure for Japan's Sick Banks," is discussed at the ESI web site, econstrat.org.

"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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