11, 09. 2005
Newly merged Mitsubishi UFJ Financial Group would increase the range of services.
'The world's largest financial institution, Mitsubishi UFJ Financial Group (MUFG), officially came into being in October, with total assets of close to 200 trillion yen. The new bank is a merger of Mitsubishi Tokyo Financial Group, Inc. and UFJ Holdings, Inc., two of Japan's four mega-banks. According to its President Nobuo Kuroyanagi, the new bank aims to become one of the world's top five banks in terms of total current value of shares (market value) when the Group closes its books for the fiscal year to March 2009.
In January 2006, holding company MUFG will merge the two houses' main commercial banks, Tokyo-Mitsubishi and UFJ, so that the group will be truly integrated and can strengthen profitability.
Retail Business is the Key to Strengthening Profitability
In the term ended in March 2005, the entities forming the new group posted joint consolidated net profit from banking operations of 1.7 trillion yen, a figure the new bank aims to raise to 2.5 trillion yen. Currently outside the world top ten, the group aims to lift its market value to the level of Citigroup and JP Morgan Chase of the US, and HSBC of Britain.
Rapid expansion of retail business is the main way to strengthen profitability. The retail business division accounted for about 16% of net profit from banking operations in the term ended in March 2005, but management aims to boost this to 35% in the term ending in March 2009. Unlike investment banking, where success hinges on making the right calls and taking the right measures, retail banking is a huge business that it mechanical in nature. As senior group executive said, 'it is relatively easy to make profit out of scale, if there is an efficient management system and a core computer system with strong functionality.'
6,000 Staff to Go Over Three-and-a-Half Years
More than anything else, restructuring is the key to more efficient management. MUFG plans to reduce personnel by 6,000 over the next three-and-a-half years and close or integrate 170 overlapping retail-banking branches across Japan. Also, by simplifying headquarters operations, it plans to cut expenses by a total of 240 billion yen.
The problem is that the computer systems used by each party to the merger differ. Tokyo-Mitsubishi uses a centralized processing system with a large IBM host computer, but UFJ relies on a decentralized parallel type of system using small Hitachi servers. MUFG will be using the divergent systems for some time after the merger, and full integration will not occur 'before December of 2007 at the earliest,' according to a top executive. Running the existing systems in parallel is possible until then, but development and marketing of new strategic products will have to wait. Although the retail banking business operates in a mechanical way, important 'equipment' remains incomplete.
'As expenses from integration will mount up over the first year or two, we are prepared to see little increase in profit.,' President Kuroyanagi insists. But the road into the global top five does not look an easy one.