by Daniel Ben-Ami


The managing director of Sumitomo Bank's European operations is determined to sweep aside a regulatory system he describes as "entirely nonsense"

Sumitomo Bank is the most likely candidate among the Japanese banks to succeed at evolving into a universal bank as deregulation proceeds. --- Warburg Securities (Japan), January 1989.

Behind the low key statement is the prospect of a revolution in international banking.  A complete deregulation of the Japanese financial system would send shock waves through London, New York and beyond.

Of all Japan's banks, Sumitomo is the one that is almost invariably described asaggressiveand looked on as the bank most likely to lead this revolution. Sumitomo Bank's underlying strength means that it has most to gain from deregulation.

 In a deregulated system Sumitomo Bank's Yoji Okabe --- head of the bank's operations in Europe, the Middle East and Africa --- is likely to play a prominent role.  He is well-acquainted with areas of banking that are now barred to commercial bankers in Japan and the US: for many years he has worked in Europe.

In London Sumitomo can carry on important financial operations which it may not  now perform in Japan.  Article 65 of the Japanese Securities and Exchange Law, imposed by the US power after World WarⅡ, forbids commercial banks' involvement in investment banking.

Mr. Okabe is not slow to criticise Japan's highly regulated banking system.  He describes Article 65 and the Glass-Steagall Act (its US equivalent) as "entirely nonsense".

Full deregulation will certainly take time. Vested interests in the securities industry are likely to put up stiff resistance to protect their lucrative business.  But the banks are pushing as hard as they can to ensure the regulatory walls, already crumbling, come tumbling down. 

In recent years the Ministry of finance has relaxed the rules to some extent. Government bond-dealing was allowed for banks back in 1984. Sumitomo immediately leapt into the business with a sophisticated on-line bond analysis system. 

The bank is also involved in limited areas of the trust business.  In anticipation of further liberalisation it formed a joint investment management business with Bankers Trust, called Sumigin Bankers Investment Management, in October 1985.

But many areas of investment banking can still only be carried out overseas or by subsidiaries.

Sumitomo Finance International, the merchant banking arm of Sumitomo which has been operating since 1973, is officially based in Switzerland.  "It is front runner against Article 65, " says Yoji Okabe, who once headed the subsidiary.

Sumitomo is the only Japanese commercial bank to take a significant stake in foreign investment banks.  It has majority stake in Banca del Gottardo. The Swiss-based investment bank gives Sumitomo the opportunity to learn more about investment banking.

Sumitomo also owns a 12.5per cent stake, acquired for about $500m,. in Goldman Sachs.  But the US authorities have forced Sumitomo to keep its distance from the American securities trader.

In Japan the authorities have placed similar restrictions on Sumitomo's attempts to creep into the securities market.  There the bank owns a 5 per cent stake in a small securities trader called Meiko Shoken.

Although the bank's stake in Meiko is small, it exerts control through shareholdings held by other companies in the Sumitomo Group.  Under pressure from the Tokyo Stock Exchange the bank had to cut the number of secondees it had working for Meiko.

Despite the obstacles, Sumitomo is unlikely to give up its clearly-stated strategy of becoming a universal bank.  Sotoo Tatsumi, president of the bank, said last year that "it is only natural for Sumitomo to seek to provide as broad a range of products as possible, including securities and trust business".

In fact Sumitomo, along with Japan's other commercial banks, has a lot to lose if the barriers are not removed.  Developments in the capital markets have curtailed its traditional business of lending to corporations.

The popularity of securitisation --- the direct raising of money on the capital markets by corporations --- has encroached on bank lending.  Most large Japanese companies have no problems issuing Eurobonds to raise funds. 

Another problem for Sumitomo is the wealth of cash held by many large Japanese corporations. Such cash mountains mean that many Japanese companies have little need to borrow money.

As the banking needs of Sumitomo's corporate clients change, so must the bank's operations.  Says Yoji Okabe: "This is the main reason we have to go into investment banking".

Sumitomo is moving towards underwriting and giving advice in fund management and other matters to corporate clients.  One of the bank's jobs in Europe is to give advice in possible investment locations to Japanese clients. For this reason it maintains contact with many regional development agencies.

Mr. Okabe is adamant that his bank has nothing to learn from Britain's retail banking sector

Declining borrowing needs of large clients have had another important effect on Sumitomo's operations.  The second main plank of the bank's strategy is to develop its services to retail customers and small businesses in Japan --- an area where it has very limited presence.

Mr. Okabe may not be involved in retail operations, since Sumitomo has none outside Japan, but he has strong views on the matter.  He is adamant that his bank has nothing to learn from Britain's retail banking sector.  "Very inefficient," is his dismissive description.  "It takes a very long time to handle a single customer in the bank.  In Japan everything is done much more quickly."

Mr. Okabe points to relative profitability figures to justify his criticism of British banks.  For example, in 1987 Sumitomo made six times more profit (before exceptional provisions) per employee than did the UK's biggest bank, Nat West.

One of the reasons behind Sumitomo's high profitability, he believes, is its efficient use of the most up-to-date technology.  Sumitomo has particularly advanced computer systems and it has its own software subsidiary.

Sumitomo is also advanced in the use of plastic cards.  It is the largest shareholder in Visa Japan and has tested smart cards.  A recent agreement with Mastercard International will allow it to offer both of the leading international credit cards.

Yet the bank is relatively undeveloped in some areas.  Sumitomo has "little experience in selling a wide range of highly differentiated products," says Mr Simon Smithson, a financial sector analyst at Kleinwort Benson International in Tokyo.  "The infrastructure is in place, but as with other banks, it is largely untested."

Sumitomo's retail network of about 360 domestic branches is one of the most extensive of any Japanese bank. According to Alicia Ogawa, a banking analyst at Warburg Securities in Tokyo , it has "an exceptionally strong retail presence". 

An important factor in the development of this network was the acquisition of the Tokyo-based Heiwa Sogo Bank in 1986.  This enabled Sumitomo, based in Osaka, to develop a more balanced set of branches.  Initially the acquisition of the troubled savings bank was expensive.  Sumitomo had to write off Y105bn in goodwill while acquiring Y230bn worth of mortgages.

As Sumitomo's profits dipped, its president, Koh Komatsu, resigned --- two months earlier than originally planned.

But with the bank's place at the top of the profitability league restored, other banks are aspiring to follow Sumitomo's example.  Sanwa Bank, also based in Osaka, is attempting to buy Daiichi Sogo, which is based in Tokyo .

Sumitomo's acquisition of Heiwa Sogo, and its stakes in investment banks, has helped it earn the tag "aggressive". Of all Japan's financial institutions Sumitomo is probably the most pushy. 
Yoji Okabe feels ambivalent about Sumitomo's reputation for aggression.  He is not quite sure to what extent the English world "aggressive" implies criticism.  "If it is not critical then I admit we are aggressive, " he says.

Simon Smithson is unequivocal.  "Sumitomo is the most aggressive of the big banks."

A side effect of Sumitomo's assertive style is the promotion of individuals by merit.  Unusually for Japan, the bank promotes people primarily according to merit rather than seniority.

But the results of an aggressive management style are not always seen as positive.  "Sumitomo has a poor reputation among corporate financial officers." Says Mr Smithson, "as they resent its apparent emphasis on its own margins at the expense of unqualified support for corporations even when they are in trouble."

Mr. Okabe disagrees with this view.  "We are not only pursuing our own profit.  We are always thinking about how to contribute to social welfare," he says.

As evidence he mentions the takeover of Heiwa sogo Bank and the acquisition of Ataka, a Trading company, in the 1970s.

Sumitomo came to the rescue when Ataka collapsed leaving a lot of small companies and manufactures vulnerable. 

Ataka, the Bank of Japan and the Ministry of Finance all asked Sumitomo to intervene. "We were not even their main bank although we did have historical links, " says Mr. Okabe.

He cites the Ataka acquisition as an example of Sumitomo's willingness to take a significant dip in its profits for the broader good.  "Although we also have a strong sense of responsibility to our depositors, so we cannot take big risks."

Another broader responsibility Sumitomo has is to its parent group.  Although the Americans broke up the Zaibatsu --- the giant financial and industrial conglomerates --- after world WarⅡ, informal connections are still important. 

Today the relationship between Sumitomo Group companies takes the form of interlocking share ownership.  About 80 per cent of Sumitomo Bank's shares are held by group members and clients.  The remaining 20 per cent is traded on the market.

Says Mr. Okabe: "The link is now not as significant as it was.  Nowadays we help each other when we are encountering difficulties."

Although the links are difficult to measure the Sumitomo Group is not reputed to be as close as Mitubishi.  But according to simon Smithson: "Sumitomo plays the traditional main bank role to the group, and is clearly one of the most influential members of group whose overall power is on the rise. "

And the Sumitomo Group is certainly powerful.  It includes several companies which are international giants in their own right.

On the financial side Sumitomo Trust, which originated as the trust department of Sumitomo Bank but broke off before the war, was the world's seventeenth largest bank in 1987.  Of British banks only Nat West and Barclays ranked higher.

Sumitomo is also heavily involved in the insurance business.  Sumitomo Life employs 56,000 people and Sumitomo Fire and Marine another 5,000.

On the manufacturing side NEC, the world's largest manufacturer of semiconductors, is the major company. There are numerous smaller companies in the group.  The links manifest themselves in various ways.  Sumitomo Bank, for example, buys more than half of its computers from NEC.

Ultimately the course taken by Sumitomo Bank will depend on what happens in its group and in the wider economy.  But given the bank's underlying strength it is more than likely to continue pushing as hard as it can to become a universal bank.

Officially Yoji Okabe says that he must refer.  Despite his seniority all important decisions are made in Tokyo.

In particular all large loans need approval from Japan. "Our policy is to centralise, " he says.  The aim is to ensure that all Sumitomo Bank's international operations are coordinated properly.

In reality Mr. Okabe has a considerable amount of discretion.  Head office approval is merely a formality

"I have my boss, the senior manager in Tokyo, but I form my opinions myself.  If he thinks I'm right then he'll give his approval. "

In some areas, particularly computerisation and local employment, decision-making is particularly decentralised. 

Mr. Okabe, therefore, exerts a large degree of control over a sizeable business empire in Europe, the Middle East and Africa. In Europe alone Sumitomo has eight branches and eight representative offices.

In addition he is a board member of Banca del Gottardo.  Yoji Okabe also has to supervise Sumitomo's involvement in several consortium banks and many other activities.

Two-thirds of his time is spent travelling around supervising Sumitomo's operations.  He spends only three or four months of the year in London.

Was it Mr. Okabe's choice to spend so much of his career outside Japan? As a loyal lifetime employee of the bank he has gone where he has been told.  "Senior management have never asked my choice, " he says.


Yoji Okabe

1934  Born  in Tokyo.
1957  Graduated with BA in jurisprudence from Kyoto University. Joined Sumitomo 
Bank.  Worked in local branch for four years.
1961-76  Spent 12 years in head office and 3 years in Sumitomo Bank of California   in  Los Angeles.
1976-80  Seconded to Sumitomo Finance International in London, the merchant  banking arm of the bank, as Managing Director.
1980-84  Returned to Japan as Manager of Merchant Banking Department. Appointed ,a Director of the bank in 1982.
1984  Returned to London as General Manager, London Branch.  Became a Managing Director of the bank in 1985.  In 1987 appointed to supervise  operations in Europe, the Middle East and Africa.

(Article "Profile--- Yoji Okabe of Sumitomo Bank", May 1989 Edition, BANKING WORLD ( The Journal of The Chartered Institute of Bankers and The Banker' Magagine)