Sumitomo Mitsui Banking Corporation

Sakura Bank logo

The Sakura Bank, Limited (さくら銀行, Sakura Ginkō) was a Japanese bank based in Tokyo and Kobe. It was formed in April 1990 as the Mitsui Taiyo Kobe Bank (MTKB) by the merger of Mitsui Bank (founded 1876) and Taiyo Kobe Bank (founded 1973).

Sakura bank root can be traced back to July 1876 when its predecessor, Mitsui Bank, was established with capital of two million yen. It was one of the Japanese government's main banks for deposits and tax collections until the formation of the Bank of Japan in 1882. In ensuing decades, the Mitsui family took over numerous government industrial plants to form a major zaibatsu conglomerate, with the bank as one of its core businesses.[12] Mitsui Bank reorganized as an unlimited partnership in 1893, and as a limited company (capital stock: ¥20 million) in 1909.[13]

World War II led Mitsui Bank to distance itself from the Mitsui zaibatsu beginning around 1937, as the bank's large balance of loans to munitions manufacturers made it vulnerable to failure should a recession occur after the war. The solution found by Mitsui's chairman was to merge the bank with the Dai-Ichi Bank, creating a much larger institution outside the Mitsui family's control.[14] In April 1943, Mitsui Bank merged with Dai-Ichi to form Teikoku Bank ("Imperial Bank").[13]

Teikoku almost immediately found itself short of funds, and for the remainder of the war, mainly provided short-term financing, with long-term financing for its munitions manufacturing customers mostly provided by the Industrial Bank of Japan.[14] Dai-Ichi and Mitsui had very different corporate cultures which led to friction between the two; the two banks never completely integrated, and in October 1948, Dai-Ichi Bank separated from Teikoku Bank.[15]

Former Mitsui Bank headquarters (1960–1990) in Yurakucho, Tokyo

Teikoku Bank listed its shares on the Tokyo and Osaka stock exchanges in May 1949 and changed its name back to Mitsui Bank in January 1954.[13] Mitsui Bank merged with Toto Bank in April 1968.[13]

Around 1960, Mitsui Bank and its general trading company partner Mitsui & Co. formed a horizontal keiretsu alliance between other companies descended from the Mitsui conglomerate, including Toyota, Toshiba, Toyo Menka Kaisha, Ishikawajima-Harima Heavy Industries, Showa Aircraft and Oji Paper.[16]

Mitsui established The Mitsui Bank of California in Los Angeles in 1974, and acquired Manufacturers Bank in 1981, merging the two later that year to form Mitsui Manufacturers Bank (renamed Manufacturers Bank in 1992).[17]

Mitsui Bank agreed to merge with Taiyo Kobe Bank in 1989. The TKB-Mitsui merger, agreed in end of 1989 during the height of the Japanese asset price bubble, was to create the second largest bank in the world behind Dai-Ichi Kangyo Bank. While TKB had a large base of individual and small business customers, Mitsui had a complementary base of larger institutional Clients. The Sakura Bank name was adopted 3 years later in April 1992. The merger was aimed at leveraging these synergies, as well as providing stronger competition against European banks, which were expected to consolidate following a deregulation in 1992.[18]

Sakura became a major corporate and retail bank in the Greater Tokyo Area during the 1990s and was the largest retail bank in Japan by several measures, including housing loan and investment trust sales.[19] However, Sakura incurred massive bad loan write-offs in 1998 and approached one of its major corporate customers, Toyota, for financial support, which was rejected.[20]

Sakura led the consortium that established Japan Net Bank, an online bank, in 2000, and began talks with Sony to establish a second online banking operation in Japan.[21]

Former Sumitomo Bank headquarters in Nakanoshima, Osaka, now an SMBC office

Former Tokyo branch of Sumitomo Bank, now an SMBC office

Sumitomo Bank was established as a private enterprise in November 1895 and reorganized as a limited company with 15 million yen of capital in March 1912.[13] It opened numerous overseas branches during the World War I era as the Sumitomo zaibatsu business globalized.[22]

After World War II, the Sumitomo group was dismantled and its constituent companies were forbidden from using the Sumitomo name. The bank renamed itself Osaka Bank in October 1948.[22] In December 1952, its name was changed back to Sumitomo Bank.[13] Sumitomo was the main bank for several major Japanese manufacturers during the early postwar era, including NEC and Panasonic (Matsushita).[22]

In the 1970s, it lost nearly US$1 billion in the restructuring of Osaka-based general trading company Ataka & Co., which, combined with the contemporaneous bailout of Mazda, had a major impact on Sumitomo's finances, driving it down from the most profitable bank in Japan to being only ninth-ranked.[23] However, the Ataka and Mazda bailouts enhanced Sumitomo's industry reputation by showing its dedication to customers. It became the largest Japanese bank by deposits until the merger of Dai-Ichi Bank and Nippon Kangyo Bank to form Dai-Ichi Kangyo Bank.[22]

In 1986, Sumitomo merged with Heiwa Sogo Bank in order to expand its presence in the Tokyo area. In the same year, it acquired 12.5% of Goldman Sachs.[22]

Sumitomo incurred major losses during the collapse of the Japanese asset price bubble in the 1990s. In 1993 it wrote off 100 billion yen in bad loans, and in 1994 its Nagoya branch manager was murdered in possible connection with a bad debt collection. In 1995, it posted the first net loss of a major Japanese bank in the postwar era.[22] It sold Sumitomo Bank of California, the sixth-largest bank in California, at a steep discount to Zions Bancorporation in 1998 (SBC is now part of California Bank and Trust).[24]

In 1999, amid intensifying competition as other Japanese and foreign banks consolidated, Sumitomo announced its merger with Sakura Bank to form Sumitomo Mitsui Banking Corporation.[22] The merger was approved in June 2000 and combined Sakura's strong retail operation and eastern Japan presence with Sumitomo's strong wholesale operation and western Japan presence.[19]

Sumitomo Mitsui Banking Corporation (SMBC) was formed by the merger of The Sumitomo Bank and Sakura Bank in April 2001. Sumitomo Bank was a major Japanese bank founded in 1895; while Sakura Bank was a descendant of Mitsui Bank, another major Japanese bank founded in 1876, but with operations dating back to 1683, when the Tokugawa Shogunate granted Mitsui Takatoshi permission to act as a money changer. The merger created one of the world's largest banking group, with similar size to Deutsche Bank and the pending merger that would form Mizuho Bank.[25] However, the newly created bank was still plagued with bad assets at that time post the asset price bubble burst (the Japanese banking industry as a whole suffered from significant non-performing loans during the 1990s and early 2000s). This led to several corporate actions taken by SMBC to clean its balance sheet and raise capital such as writing off its non-performing loans and selling its entire stake in Goldman Sachs.[26][27]

SMBC Asia hub is located in Centennial Tower in Singapore

In 2003, SMBC conducted reverse merger with its subsidiary, Wakashio Bank, to secure financial resources to cover large deferred losses from its equity holdings. Although SMBC was technically dissolved and Wakashio Bank became a company that survived, under the Japanese Commercial Code, the surviving entity took the name Sumitomo Mitsui Banking Corp., just like the disbanded bank name. SMBC President Yoshifumi Nishikawa and Chairman Akishige Okada became president and Chairman of the new entity respectively. Hiroyasu Ichikawa, President of Wakashio Bank, assumed the position of senior managing director.[28] The idea of the reverse merger is to create smaller entity with excess profit. The profit, then, was used to accelerate write-offs of the bank's unrealized securities losses and boost sales of its shareholdings to reduce risk from the fluctuation of stock prices.[29] Post the merger, the new entity grew rapidly through organic and inorganic growth strategy. The assets expanded from 102.4 trillion yen in 2003 to more than 200 trillion yen by the end of 2019, making it the 12th largest bank in the world.[30]

At present, the bank serves as the core retail, corporate, and investment banking arm of both the namesake Sumitomo and Mitsui groups. Its traditional client base is made up of Japanese corporates, but overseas corporate lending increased following overseas expansion. SMBC's overseas network consists of 130 branches and offices in 40 countries and regions as of 2018. SMBC provides financial products and services to a wide range of clients, including individuals, small and medium-sized enterprises, large corporations, financial institutions and public sector entities. Since 2008, the Singapore branch has become SMBC's regional hub in Asia Pacific while global headquarters is still maintained in Tokyo, Japan.[31][32][33]

SMBC's shares has become listed on the first section of the Tokyo Stock Exchange, the Osaka Securities Exchange and the Nagoya Stock Exchange since December 2002. It has secondary listing in New York Stock Exchange. The stock tickers are TYO: 8316 and NYSE: SMFG.[34]

The bank steadily increased its tier 1 capital ratios from 12.19% in 2014 to 16.69% as reported in March 2018. Standard & Poor's, Moody’s and Fitch Ratings assigned SMBC's an A1, A and A rating respectively (as at March 2018).[31]

SMBC signage board

Sumitomo Mitsui Financial Group acts as the holding company for the SMBC group. The core subsidiary of the group is the banking unit, Sumitomo Mitsui Banking Corporation (SMBC).

The group's banking unit is organised in the following structure:[49]

• Consumer Banking Unit
• Middle Market Unit
• Corporate Banking Unit
• Investment Banking Unit
• International Banking Unit
• Treasury Unit
• Compliance Unit
• Corporate Staff Unit

Throughout the years, the group has expanded into other related businesses such as leasing, brokerage and asset management. As of 2020, the major subsidiaries beside the banking unit include SMBC Nikko Securities, SMBC Trust Bank, Sumitomo Mitsui DS Asset Management, Sumitomo Mitsui Finance and Leasing and Japan Research Institute (JRI).[11][50]

The group was identified by its holding entity name, Sumitomo Mitsui Financial Group (SMFG), until early of 2018. By March 2018, the group established "SMBC Group" as its master brand name. Since then, the corporate group has been referred to as SMBC Group instead of SMFG. The press release by the company stated the move is to associate the brand with the group's core banking business, Sumitomo Mitsui Banking Corporation.[51][52]

SMBC Group's corporate logo uses "Rising Mark" sign. The background color is trad green, fresh green. The “SMBC” name is shown on the right side of the rising mark with white block letters.

In 2014, SMBC Group created an original mascot character called Midosuke, which imitates an otter.[53] The body of the character is green in color, the neck of it is covered by a scarf with the color similar to SMBC group's rising mark logo. The character was designed by Tsuneo Goda (Dwarf Co., Ltd.). Originally, it was used mainly for official LINE accounts but later it has been used as commercials character, face design of cash cards or debit cards, and merchandise for bank customers.[54]

The history of SMBC Nikko Securities can be traced back to Nikko Cordial Corporation, which was the holding company for Nikko Cordial Securities. The company was Japan's third largest brokerage until 2008, when Nikko Cordial Corporation became a wholly owned subsidiary of Citigroup; upon completion of share exchange, it merged with Citigroup Japan Holdings Ltd. to form Nikko Citi Holdings Inc., before changing its name to Citigroup Japan Holdings Corp. in 2009.

In October 2009, all of the operations of Nikko Cordial Securities and certain businesses of Nikko Citigroup, such as the domestic stock and bond underwriting business among others, were sold to Sumitomo Mitsui Banking Corporation, before being reorganized into a new subsidiary company, SMBC Nikko Securities Inc., in April 2011.[57][58] SMBC Nikko Securities becomes investment banking arm of SMBC group and offers equity and debt financing, trading, and merger and acquisition advisory services worldwide with the main base in Japan.

SMBC Aviation Capital, formerly RBS Aviation Capital, is one of the world's largest aircraft leasing companies. Headquartered in the International Financial Services Centre in Dublin and with locations in Amsterdam, Beijing, Hong Kong, Kyiv, Moscow, New York, Seattle, Miami, Shanghai, Singapore, Tokyo and Toulouse, the company employs 160 people.

In 2012, the company was acquired by the Japanese consortium of Sumitomo Mitsui Banking Corporation (SMBC), Sumitomo Mitsui Finance and Leasing Company Limited (SMFL) and Sumitomo Corporation for US$7.3 billion which was the largest ever global sale of an aircraft leasing business. The sale completed on 1 June 2012 and the business was renamed SMBC Aviation Capital.[59]

The company currently has a portfolio of 453 aircraft (273 owned and 180 managed) with a further 203 aircraft on order from Airbus and Boeing, made up of a mix of A320neos, A320-200s, B737-800s and B737 MAXs. It has more than 150 airline customers in over 50 countries worldwide, including a range of traditional carriers alongside start-up airlines.

Its strategy is to own and lease technologically advanced, efficient and frequently-used aircraft types. SMBC Aviation Capital maintains a young fleet with an average weighted age of 4.7 years. The company has a BBB+ rating from Fitch.[60]

The company is now in its 15th year in business. In July 2016, the company completed a debut US$500 million unsecured notes offering, which was eight times over-subscribed.[61]

Bank BTPN focuses on serving the mass market segment consisting of pensioners, micro, small and medium enterprises (MSMEs), productive poor communities; consuming class segment; and the corporate segment in Indonesia. By 2019, Sumitomo Mitsui Banking Corporation (SMBC) officially owns 96.9% of PT Bank Tabungan Pensiunan Negara Tbk (BTPN) shares. This is an increase from the previous ownership which was only 39.92%. The gain in the portion of SMBC shares in BTPN is in line with the acquisition of additional shares of 3.33 billion or around 56.98% conducted in January 2019. The shares transaction was carried out at IDR4,282 per share.[62][63][64]

Post acquisition, the entity was merged with SMBC's subsidiary in Indonesia. In a summary of the proposed merger of BTPN and Bank Sumitomo Indonesia, the total assets and total equity of the merged bank reached a total IDR 178 trillion and IDR 26.92 trillion respectively, using financial position as of May 31, 2018. Upon the merger, BTPN became the 8th largest bank in Indonesia by total assets.[63][65]

SMBC has an ownership in Bank of East Asia (BEA). In 2015, the bank increased its investment in BEA by approximately HKD 6.6 billion, bringing SMBC's shareholding in BEA to 17.50% from 9.68% previously.[66][67]

An IC cash card is a single cash card that can be used with three method of identification: biometric authentication, IC chip or magnetic stripe, by setting the limit and registering biometric information (finger vein pattern). With this cash card, the security of usage improved since transactions relies on IC chip recording data and the pattern of past transactions that combined IC chip recording data and biometric authentication.[68]

As of 2017, SMBC issued IC cash cards at the bank's counters (only applicable to ordinary design deposit cash cards; cards of other designs and non-savings accounts are not eligible for immediate issuance).[68]

Several Blockchain-related initiatives also has been implemented by SMBC. The bank is planning to implement the use of R3's Marco Polo trade finance blockchain, the international blockchain trade finance network, on a commercial basis by the end of 2020.[69][70]

SMBC has been an early adopter of AI in its banking operation. It is the first Japanese bank to use IBM Watson since 2014 to support operators at its call center.[71] AmiVoice, a voice recognition solution provided by SMBC, transforms inquiries into text on a real-time basis as a speech recognition system, while IBM Watson gives customers responses taken from service manuals and Q&As, thereby allowing digital operators to provide timely and correct answers to callers.[72]

Since 2011, Japan's law regulator put series of efforts to battle organized crime activities in the country. This includes exclusion ordinances that made it illegal to do business with Yakuza gang members. Methods include that which brought down Al Capone such as checking the organization's finances. In 2013, the Financial Services Agency, Japan’s financial watchdog, started investigation of the three mega banks over possible ties to organised crime after Mizuho banking group was accused to lend more than US$2 million to people affiliated with organized crime groups in Japan. The probe also focused on compliance practices and risk management systems of the banks.[95][96][97][98]

To step up the effort of dissociation with Yakuza, the Japanese Bankers Association's members, including SMBC Group, started to compile their own lists on Yakuza and other so-called anti-social forces to keep undesirable persons from using their services to perform transactions.[99]

In June 2012, an employee of SMBC Nikko securities was arrested for alleged insider trading due to the suspicion of having leaked information on tender offers. The employee allegedly provided leaked information on tender offers for at least more than 10 firms to a company top personnel and other recipients. One of the information was regarding management buyout bid by a wine trading house, Enoteca Co., before the takeover bid plan was announced in February of when it was listed on the Tokyo Stock Exchange's Second Section.[100][101][102]

The said employee worked for SMBC Nikko on secondment from Tokyo-based Sumitomo Mitsui's banking unit since October 2009. He was the deputy head of investment banking at that time and was loaned from SMBC bank (it is common for employees to be rotated to other divisions of the bank periodically). He became the first banker from a major Japanese brokerage to be detained for suspected insider trading since 2008. He was ultimately convicted by Yokohama District Court in 2013 and charged with prison sentence of 2 years and 6 months.[103][104][105]

As a consequence of this event, The Tokyo Stock Exchange fined SMBC Nikko Securities 80 million yen (US$1.02 million) for the violation of exchange rules.[106][107]

A former deputy branch manager of the Omori branch illegally operated the foreign currency deposit transaction system from November 2015 to June 2016. The employee was accused of stealing around ¥190 million (US$1.84 million) by manipulating the bank's foreign exchange trading system.[108]

A group of criminal hackers including Hugh Rodley, security insider Kevin O'Donoghue and Soho sex shop owner David Nash were found guilty of an attempted high-tech robbery of £229m from Sumitomo Mitsui Banking Corporation's London branch in September 2004. Henchmen Jan Van Osselaer and Gilles Poelvoorde were also found guilty of conspiracy to steal. The plot was discovered by Sumitomo Mitsui staff, and no money was stolen. Another accused, Bernard Davies, died before trial.[109]

Hedge fund activist investor Elliott Management filed a lawsuit against BEA in July 2016 in Hong Kong court over a share placement transaction.[110] Elliott Management, which held 7% of listed shares of BEA, had included majority of the bank's directors, its CEO and chairman in the lawsuit. The transaction in question was on BEA's issuance of new shares to Japan's Sumitomo Mitsui Banking Corp (SMBC) in 2015. Elliott cited "allegations of unfairly prejudicial conduct" and "alleged serious corporate governance failings".[111]

In response, BEA applied to have Elliott's petition against them "struck out". This case was heard by Mr Justice Jonathan Harris from 17 to 19 July 2017.[112]