| SUMITOMO BANK AIMS AT QUICK RECOVERY FROM MERGER | |
| Sumitomo Bank Ltd <SUMI.T> is certain to | |
| lose its status as Japan's most profitable bank as a result of | |
| its merger with the Heiwa Sogo Bank, financial analysts said. | |
| Osaka-based Sumitomo, with desposits of around 23.9 | |
| trillion yen, merged with Heiwa Sogo, a small, struggling bank | |
| with an estimated 1.29 billion dlrs in unrecoverable loans, in | |
| October. | |
| But despite the link-up, Sumitomo President Koh Komatsu | |
| told Reuters he is confident his bank can quickly regain its | |
| position. | |
| "We'll be back in position in first place within three | |
| years," Komatsu said in an interview. | |
| He said that while the merger will initially reduce | |
| Sumitomo's profitability and efficiency, it will vastly expand | |
| Sumitomo's branch network in the Tokyo metropolitan area where | |
| it has been relatively weak. | |
| But financial analysts are divided on whether and how | |
| quickly the gamble will pay off. | |
| Some said Sumitomo may have paid too much for Heiwa Sogo in | |
| view of the smaller bank's large debts. Others argue the merger | |
| was more cost effective than creating a comparable branch | |
| network from scratch. | |
| The analysts agreed the bank was aggressive. It has | |
| expanded overseas, entered the lucrative securities business | |
| and geared up for domestic competition, but they questioned the | |
| wisdom of some of those moves. | |
| "They've made bold moves to put everything in place. Now | |
| it's largely out of their hands," said Kleinwort Benson Ltd | |
| financial analyst Simon Smithson. | |
| Among Sumitomo's problems are limits placed on its move to | |
| enter U.S. Securities business by taking a share in American | |
| investment bank Goldman, Sachs and Co. | |
| Sumitomo last August agreed to pay 500 mln dlrs for a 12.5 | |
| pct limited partnership in the bank, but for the time being at | |
| least, the Federal Reserve Board has forbidden them to exchange | |
| personnel, or increase the business they do with each other. | |
| "The tie-up is widely looked on as a lame duck because the | |
| Fed was stricter than Sumitomo expected," said one analyst. | |
| But Komatsu said the move will pay off in time. | |
| "U.S. Regulations will change in the near future and if so, | |
| we can do various things. We only have to wait two or three | |
| years, not until the 21st century," Komatsu said. | |
| Komatsu is also willing to be patient about possible routes | |
| into the securities business at home. | |
| Article 65 of the Securities and Exchange Act, Japan's | |
| version of the U.S. Glass-Steagall Act, separates commercial | |
| from investment banking. | |
| But the walls between the two are crumbling and Komatsu | |
| said he hopes further deregulation will create new | |
| opportunities. | |
| "We need to find new business chances," Komatsu said. "In some | |
| cases these will be securities related, in some cases trust | |
| bank related. That's the kind of deregulation we want." | |
| Until such changes occur, Sumitomo will focus on such | |
| domestic securities business as profitable government bond | |
| dealing and strengthening relations with Meiko Securities Co | |
| Ltd, in which it holds a five pct share, Komatsu said. | |
| He said Sumitomo is cautiously optimistic about entering | |
| the securities business here through its Swiss universal bank | |
| subsidiary, Banca del Gottardo. | |
| The Finance Ministry is expected to grant licences to | |
| securities subsidiaries of U.S. Commercial banks soon, | |
| following a similar decision for subsidiaries of European | |
| universal banks in which the parent holds a less than 50 pct. | |
| But Komatsu is reluctant to push hard for a similar | |
| decision on a Gottardo subsidiary. | |
| "We don't want to make waves. We expect this will be allowed | |
| in two or three years," he said. | |
| Like other city banks, Sumitomo is also pushing to expand | |
| lending to individuals and small and medium businesses to | |
| replace disappearing demand from big business, he added. | |
| The analysts said Sumitomo will have to devote a lot of | |
| time to digesting its most recent initiatives, including the | |
| merger with ailing Heiwa Sogo. | |
| "It's (Sumitomo) been bold in its strategies," said | |
| Kleinwort's Smithson. | |
| "After that, it's a question of absorbing and juggling | |
| around. It will be the next decade before we see if the | |
| strategy is right or wrong." | |