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Fuji Bank's Boss: Searching for a "Better Balance" Yoshiro Yamamoto opened Fuji's books, and he has engineered the biggest Japanese bank merger ever. What's next? Japanese banking circles were rocked last month by news of a grand alliance between Fuji Bank, Dai-Ichi Kangyo, and the Industrial Bank of Japan. The trio will create the world's biggest global financial service group with $1.2 trillion in assets. It will dominate corporate lending and an array of wholesale and investment banking services at home. It has also set an ambitious goal to become one of the top five money-center banks in the world over the next several years. The aim is to establish a credible Japanese challenger to Citibank, Deutsche Bank, and HSBC. One of the architects of the alliance is Fuji Bank President Yoshiro Yamamoto. He won praise last fall for fully opening Fuji's books to the public and disclosing the level of his bank's bad-debt exposure. Fuji was the first money-center bank in Japan to take that painful step. And as the primary lender to the Fuyo keiretsu, which includes Nissan and Canon, Yamamoto is considered one of the most influential figures in Japanese banking. Before heading off to New York to meet with institutional investors, Yamamoto discussed his vision for Japan's first $1 trillion bank with Business Week Asian Economics Editor Brian Bremner. Here are edited excerpts from their conversation: Q: Last fall, Fuji had announced a restructuring plan and suggested it was open to partnerships -- but nothing on this scale. What changed your thinking? A: There were three reasons involving efficiency, the expansion of our business portfolio, and the demands of information technology spending. Japan is now in the position of being overbanked. And there was a limit to what we could do alone. Each of the three banks, for instance, is a player in the wholesale securities business -- a market where we want to expand more. In Japan, you really need about 300 billion yen [$2.8 billion] in capital to be a factor. If each bank were to invest this amount of capital, it would be too much of a burden. One of the other growth areas will be pension management. If all three of us combine our efforts, we will be competitive. It's all about getting a critical mass. I also wanted to change our business portfolio. We couldn't simply just continue to serve big corporate borrowers in a traditional manner. Q: Melding the culture of two banks is tough -- even more so when you are talking about three unique players such as Fuji, IBJ, and DKB. Isn't this going to be a daunting task? A: It's difficult. But rather than meld cultures, we want to create a brand new one. Consider the issue of compensation and human resources. Last July, Fuji abolished its seniority-driven compensation system. It was a culture shock for many employees. Salaries and bonuses are now more tied to individual performance and talent. This will eventually be the policy for the entire new group. There is a second element of the cultural revolution, however. When our holding company is finally established, we will have three major business units, focused on consumer or retail banking, corporate banking, and investment banking and wholesale securities. They will have return on equity targets. They will be competing against each other. Q: You have ambitious plans to boost the level of IT spending, a traditional weakness in Japan, at the combined operation? What will be your focus? A: We want to spend about 150 billion yen [$1.2 billion] a year. That's about the level of Bank of America and well above the average of most Japanese banks. We need to spend a lot more money on risk-management and computer systems to help develop new financial derivative products. Internet banking could give us a different type of distribution of services. We are also interested in developing systems for database, or customer retention, marketing. Q: Do you see the big changes in management practices now occurring in the banking sector sweeping the broader economy as well? A: Japan has been group-oriented. That has held back some with individual talents. It's also a part of the Japanese education system. There is a philosophy that everyone should have the same opportunities. Japan has placed too much emphasis on equality. In the future, we will be more performance-oriented. Of course, if you think of the U.S. and take this too far, you might end up with too many people losing their job security in Japan. I personally don't believe in that. What we need in Japan is a better balance.
EDITED BY DOUGLAS HARBRECHT
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