JEI's Spin on the News

Putting Humpty-Dumpty Together Again

Friday, September 18, 1998

Some of Japan's leading financial firms are trying to resurrect a very old idea. Nearly fifty years after being forcibly split apart by occupation authorities, members of the old Mitsubishi zaibatsu are talking about forming a sort of grand alliance among the Mitsubishi financial service firms that resulted from the occupation actions. Other groups of firms once organized into zaibatsu are having similar thoughts.

Typically these groupings include one firm each from among the several traditionally distinct compartments of the Japanese financial services industry. In Mitsubishi's case, the group includes Bank of Tokyo-Mitsubishi, Mitsubishi Trust and Banking Corp., Meiji Life Insurance and Tokio Marine and Fire Insurance.

The impetus for the action stems from recent changes that permit holding companies, which had been illegal since the days of the occupation, as well as the ongoing "big bang" process of financial deregulation. As a consequence of the latter, financial services firms increasingly can encroach on each other's turf. Mitsubishi Trust, for example, faces the possibility of rivalry in the trust business from Bank of Tokyo Mitsubishi. The move to put all the Mitsubishi financial firms under one umbrella seems like an effort to nip this emerging competition in the bud. It would also serve as a "circling the wagons" action against foreign and domestic rivals.

These actions eventually are likely to been seen as driven more by nostalgia for zaibatsu and attempts to escape competition than by business logic. Other link ups, such as Japan-foreign ventures such as that between Sumitomo Trust and Alliance Capital Management or between Nikko Securities and Salomon Smith Barney, offer far more in the way of synergies. In the case of near-mergers involving only Japanese financial service firms, more often than not none of the would-be components of a combined entity have state of the art competence. Moreover, in the case of the old zaibatsu companies, decades of separation have resulted in distinctive corporate cultures. Hence, putting even parts of a Humpty-Dumpty zaibatsu together again could be far more trouble than it is worth.

"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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