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. Last Updated: 07/27/2016

3 Japan Banks to Form Global Giant

TOKYO -- Three big Japanese banks announced plans for a broad alliance Friday, giving birth to the world's first trillion-dollar financial group and heralding Japan's long-awaited entry into the era of global banking consolidation.

The three banks - the Industrial Bank of Japan, Dai-Ichi Kangyo Bank and Fuji Bank - said they will form a joint holding company by the autumn of next year and integrate their business operations by the spring of 2002.

The combined group will have assets totaling $1.3 trillion, surpassing the current world banking leader Deutsche Bank AG, with assets of $735 billion.

Shares in the three banks were bid- only throughout the morning session amid hopes that the deal would spur a much-needed realignment in the nation's troubled financial sector. The market's banking subindex jumped 7 percent.

At the Tokyo midday, IBJ was bid-only at 1,084 yen ($9.72) against Thursday's last-traded price of 984, DKB was bid-only at 1,009 against Thursday's 909 and Fuji bid-only at 1,043 against 943.

"In the short term, fund managers cannot help buying the banks' shares given the size of their alliance, but in the longer term the alliance will be assessed on what kind of drastic restructuring steps they can take," said Akira Takai, senior banking analyst at Daiwa Institute of Research. Setsuko Akiba, analyst at Deutsche Bank Group, said the three banks' share prices could rise to around 1,500 yen, with the new alliance expected to grab 14 percent of bank lending to listed Japanese companies.

The new group's size will enable it to make effective investments and improve risk management, while creating opportunities for further restructuring.

"It's a defensive type of move," said Yasushi Okada, chief economist at CS First Boston Securities.

He added that, while he did not believe the alliance would automatically make the banks globally competitive, it would provide a new model for Japanese banking mergers.

The banks' plan to form a financial holding company was made possible by Japanese regulatory reforms implemented in March 1998.

The three banks said they will initially divide their operations into retail, corporate and investment banking that will eventually be integrated. DKB President Katsuyuki Sugita will become president of the holding company. The banks aim to cut their employees by 6,000 to a total of 29,000 in the first five years after the holding company is formed, while cutting the number of branches by 150.

The cuts are expected to be achieved by natural attrition, analysts said.

By adopting a holding company structure, analysts said the banks can restructure with minimum pain, as each bank will be able to maintain its current wage structure for some time.

The three banks will also be able to take advantage of expected revisions in Japanese regulations, which may come as early as mid-2000, making it easier for firms to spin off operations.

With the formation of the triple alliance, analysts expect Japan's banking sector will be led by three to four groups including current leaders Bank of Tokyo-Mitsubishi and Sumitomo Bank.