SMFG rules out Daiwa merger

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Teisuke Kitayama, president of SMFG, has ended months of confusion over the bank's future by categorically ruling out a merger with Daiwa Securities, the country's second largest brokerage, saying the bank will instead pursue a “go it alone” strategy.

The merger of SMFG and Daiwa Securities would have created a financial giant with assets of about Y140,000bn ($1,200bn) and was particularly significant because it would have been the first merger of one Japan's huge banks and large brokerages.

“Both companies [Daiwa and SMFG] have not entered into any negotiations with each other and both companies have no plans to consolidate with each other,” Mr Kitayama told the Financial Times in an interview.

The statement marks a significant strategic shift for the bank. Yoshifumi Nishikawa, its previous president, tried to engineer a grand alliance with last year's $29bn attempted merger with rival mega bank UFJ, which eventually merged with MTFG. A merger between SMFG and Daiwa has been widely expected in Japanese financial markets as a response to consolidation elsewhere in the industry.

The failed UFJ deal and speculation about a Daiwa merger created the impression that SMFG wanted to expand by securing a huge financial industry union, but Mr Kitayama said piecemeal expansion would now govern the bank's future.

The decision by SMFG to pursue an independent strategy comes as the Financial Services Agency, Japan's regulator, is clearing the way to create financial conglomerates offering the entire range of financial services. A SMFG/Daiwa tie up was seen as a significant step towards this.

Mr Kitayama rejected this business model outright. “We do not have any intention to become a big conglomerate. We don't want to have various companies under our umbrella. There are other options,” Mr Kitayama said.

He said SMFG now plans to announce a series of smaller investments and alliances with non-bank companies in Japan that will allow it to expand its retail customer base. Candidates include companies with a large network of customers, such as retailers, he said.

“We will set up alliances with industries that do not belong to the financial sector. There are opportunities for building the retail business with industries that have a big network or customer base to distribute our products to,” he said.

These deals will be similar to SMFG's recent alliance with NTT DoCoMo, the mobile phone company, which offers credit-payment services using DoCoMo phones, and its tie up with East Japan Railway, which combines credit card operations with the rail company's own card, which can be used to buy tickets and goods at retailers.

Mr Kitayama said the bank is also studying a move into Asian retail banking, possibly with the acquisition of a strategic stake in a bank in the region.

FINANCIAL TIMES

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