The Dai-Ichi Kangyo Bank Ltd.

1-5, Uchi-Saiwaicho 1-chome
Chiyoda-ku
Tokyo 100
(03) 596-1111

Public Company
Incorporated: 1971
Employees: 18,411
Assets: ¥54.28 trillion (US$434.31 billion)
Stock Index: Tokyo Osaka Amsterdam London Paris
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The Dai-Ichi Kangyo Bank, or DKB, is the largest commercial bank in the world. A traditionally conservative bank deeply rooted in the domestic economy, DKB was largely unprepared for its rapid rise to leadership in international banking during the 1970s.

DKB is the product of a relatively recent merger between two established hundred-year-old banks. The Nippon Kangyo Bank was established in 1867 as a “special bank,” which raised capital by issuing debentures. The Dai-Ichi Kokuritsu Ginko, or First National Bank, was founded in 1873 by the industrialist Eiichi Shibusawa. In addition to its regular business, Dai-Ichi issued currency on behalf of the government treasury as a central bank. It was removed from this role when its national banking charter expired in 1896. Dai-Ichi, re-incorporated as an ordinary commercial bank, was headed by Shibusawa until his retirement in 1916. Nippon Kangyo, meanwhile, was incorporated in 1896 to issue long-term and low-interest government bonds for agriculture and industry.

The two banks developed in different directions, particularly during the period between 1910 and 1930, as Japanese industry matured on a large scale. Nippon Kangyo was evenly represented throughout Kanto prefecture and remained closely associated with rural industries. It continued to broaden the scope of its business, adding real estate financing in 1911. Dai-Ichi’s business, on the other hand, was concentrated in Tokyo, the industrial center of the prefecture and capital of Japan.

At this time, virtually all these banks had in common was their location and competition against the larger zaibatsu banks, namely, Mitsubishi, Mitsui, Sumitomo, and Yasuda. Not really banks as much as outgrowths of enormous industrial combines, the zaibatsu banks permeated virtually every sector of Japanese industry and society, providing both high finance and individual banking services. The zaibatsu collectively squeezed smaller banks such as Nippon Kangyo and Dai-Ichi out of many high-growth industrial ventures simply by financing themselves.

As the industrial backbone of Japan, the zaibatsu naturally wielded great political influence in Japan—influence which perpetuated their strength. During the 1930s, however, a militant right-wing officers corps gained power over the Japanese government. The militarists had hoped to deconcentrate industrial power, but their imperialist adventurism in Asia required the opposite action. In the end, the government encouraged small and medium-sized enterprises to amalgamate into larger companies.

Despite a rash of consolidations, Nippon Kangyo maintained its independence throughout the war, although it was ordered by the government to issue war bonds in 1937. Dai-Ichi, however, was merged with the Mitsui Bank in 1943 and renamed Teikoku Bank.

When World War II ended in 1945, the occupation authority purged Japanese industry of war criminals and enacted laws to divide the zaibatsu and other large companies into smaller entities. These laws separated the Dai-Ichi Bank from Teikoku in 1948.

Nippon Kangyo’s role in the postwar economy, meanwhile, had yet to be decided upon. It was awarded an exclusive license in 1945 to handle the national lottery for local public agencies. Five years later, the bank gave up its special status and became a general deposit bank. In 1952, following passage of the Long-Term Trust Bank Law, Nippon Kangyo abandoned its original business of issuing bonds.

Both banks provided funding for (in essence, invested in) a number of Japanese industries in their infancy. As the basic groundwork was laid for a modern, export-led economy, Japanese banks in general began to experience a strong and relatively steady expansion. Nippon Kangyo and Dai-Ichi each developed an impressive list of clients who wished to remain independent of the zaibatsu groups. Nippon Kangyo’s customers included Nippon Express, Shiseido cosmetics, and Seibu Department Stores. Dai-Ichi’s list included the more vigorous Hitachi, Kawasaki Heavy Industries, and C. Itoh.

The first indication of reform in the postwar Japanese banking regime came in the late 1960s, when American banks, distinguished by huge capitalizations, moved into Japan and gradually gained control of an ever increasing share of the Japanese lending market. Unwilling to enact protectionist banking legislation, the government’s Ministry of Finance advocated consolidations in the belief that larger banks would redistribute their branches and more efficiently tap new sources of capital.

The first consolidation proposal, forwarded in 1969, would have merged Dai-Ichi with the larger Mitsubishi Bank. This proposal failed, in part because Dai-Ichi’s “lesser zaibatsu” clients, the Furukawa and Kawasaki industrial groups, feared subjugation by their competitors in the Mitsubishi group. Another source of anxiety for Dai-Ichi board members was that because of the uneven size of the two banks, the merger appeared to be a Mitsubishi takeover.

Wishing to preserve the bank’s organizational independence and pursue a true merger, Dai-Ichi began to investigate the feasibility of a merger with the Nippon Kangyo Bank during 1970.

Dai-Ichi, Japan’s sixth largest city bank at the time, appeared in every respect to be perfectly matched with Nippon Kangyo, then ranked eighth. The greatest benefit the banks would gain from a merger was a more efficient geographical redistribution of branch networks. Dai-Ichi was a metropolitan bank whose business was centered in Tokyo and Osaka. Nippon Kangyo, on the other hand, maintained a nation-wide branch network with offices in every one of Japan’s 46 prefectures.

Still, of almost 300 branches, about 50 were in the same location. In order to achieve better geographical coverage, redundant offices belonging to Dai-Ichi were relocated to more promising sites in suburban areas. Another problem with the merger was that Nippon Kangyo’s computer system was IBM-based, while Dai-Ichi used Fujitsu equipment. This problem, while not unresolvable, took years to overcome.

The merger was completed in October of 1971. The new bank, called Dai-Ichi Kangyo, immediately became Japan’s largest city bank. In order to start with a new, more positive public image, DKB adopted a red heart on a white background as its logo. The gargantuan “bank with a heart” redoubled efforts to gain more business in the individual banking sector by offering new financial products. Among these were the oyako, a 50-year parent-child mortgage, created as a way to deal with skyrocketing land values. The new sales effort also gave rise to an army of bicycle-riding door-to-door salesmen, whose mission it was to canvass every home in Japan in search of business.

Troubles with the bank’s amalgamation were obscured somewhat by the oil crisis of 1973-1974. But soon afterwards, it was apparent that the merger was not progressing as smoothly as had been anticipated. Dai-Ichi, traditionally government-oriented in its business, was a conservative institution, while the agriculture-oriented Nippon Kangyo adhered to a more progressive philosophy. A dual administrative structure was created that maintained strict parity between “D” men and ^UK” men in the boardroom and at every level of management. Even in personnel affairs, three centers were created: one for Dai-Ichi people, one for Kangyo people, and one for new recruits.

When Saseba Heavy Industries, a shipbuilder and former Nippon Kangyo client, fell on hard times, the “D” men advocated writing off the account. “K” men appealed for time to set up a government rescue plan. Saseba was saved, but the impatience of the “D” men was clearly not appreciated by the ^UK” men.

Since the merger, however DKB had experienced very strong growth. It was powerful in both commercial and individual banking, and conducted a number of rather off-beat financial services, including the national lottery. But more importantly, Dai-Ichi Kangyo became the head of a fifth keiretsu (the name given to zaibatsu groups after the war, which means “banking conglomerate”). Like Mitsui, Mitsubishi, Sumitomo, and Fuyo, the Sankin Kai, or Dai-Ichi Kangyo group, had interests in every high-growth sector of Japanese industry. Its clients list included Kawasaki Steel, Kawasaki Heavy Industries, the “KKK” shipping line, Fujitsu, Nippon Kangyo Kakumara Securities, Shiseido, Kobe Steel, Ishikawajima-Harima Heavy Industries, Hitachi, and Isuzu Motors.

Shuzo Muramoto was named president of Dai-Ichi Kangyo in 1976. A career Dai-Ichi man, Muramoto was promoted, in part, to maintain the bank’s balance between “D” men and “K” men. He was in many ways a symbol of the bank’s first achievement in consensus management. Muramoto was a highly respected advisor to the government on such matters as industrial strategy, the economy, and trade issues. He tempered factional rivalry in the boardroom and focused the bank’s attention on setting and attaining goals.

DKB also adhered more closely to the progressive philosophy of Kangyo under Muramoto. DKB’s competitors avoided setting up offices in Taiwan in an effort to win favor with the mainland Chinese. DKB, however, actively expanded its presence on the island in the belief that dual contacts would become a great asset as Chinese reunification efforts developed. The bank also began a controversial effort to assist new foreign competitors in Japanese markets. Far from accelerating the loss of domestic business to foreign firms, this policy actually created greater harmony.

After 20 years of export-led growth, Japan’s largest banks were very wealthy. The fear that these banks would exhaust Japan’s supply of investment opportunities and that competition for what remained would become increasingly acute precipitated a general rationalization and restructuring effort in Japanese banking.

Strict finance laws prevented Dai-Ichi Kangyo and other banks from diversifying into many new areas. Clearly, the best prospects for new growth were overseas. While many of DKB’s competitors simply purchased foreign banks, DKB preferred to start its overseas operations from scratch, believing that existing operations often came with unwanted obligations. The one major exception to that rule came in 1980, when DKB purchased the Japan-California Bank (renamed Dai-Ichi Kangyo Bank of California).

Nobuya Hagura, who became president of DKB in 1982, pressed hard for the repeal of Japan’s restrictive finance laws—particularly Article 65 of the Securities Exchange Law. This law, comparable to the American Glass-Steagall Act, prevents banks from engaging in the securities business. Hagura and other bankers insisted that this law was obsolete. In the mean time, many banks simply purchased foreign dealers. After waiting some time, Dai-Ichi Kangyo finally entered the New York market in 1986, when it started its own company, the Dai-Ichi Kangyo Trust Company, by purchasing $215 million in business loans from the U.S. Trust Company of New York.

Ten years after the merger, the bank was still dealing with its after effects. Its dynamism was constrained by commitments to clients in the troubled steel and shipbuilding sectors, as well as by overstaffing; Sumitomo, a smaller but more profitable competitor, maintained several thousand fewer employees. In an effort to diversify, to eliminate underperforming accounts, and to reduce employee rolls, the bank initiated two major reorganizations in five years.

Most of the bank’s goals were met, but the most important change to take place involved the introduction of electronic information services on capital markets. With a 10% market share in dealing government bonds, the DKB was gearing up for entry into investment banking.

At this time the United States government dramatically increased its borrowing. This led to a sharp decrease in the value of the dollar. As a result, DKB, with the bulk of its assets in yen, surpassed Citicorp to become the largest bank in the world in 1986. Much of the bank’s growth, however, must be attributed to lower interest rates, which increased income from spread lending. By 1987, many of the bank’s investments in foreign operations were beginning to pay off. Most notable were the New York securities subsidiary, a DKB-controlled bank in Hong Kong, and an investment consultancy in London. Still, the company’s greatest assets remain its branch network and prime corporate accounts.

For Dai-Ichi Kangyo, growth begets further growth. It is now one of Japan’s most important companies and, with its strong entry into international markets, has become a primary clearing house for large-scale corporate finance.

Despite renewed efforts to dissolve a compartmental mentality, the Dai-Ichi Kangyo Bank suffers from this dualality. Without a powerful figurehead, the DKB remains a largely faceless institution, in strong contrast with its intended character as a “people’s bank.” But however it is viewed by the public, the Dai-Ichi Kangyo Bank is not only the world’s largest bank, but one of its most important institutions.

Principal Subsidiaries

Dai-Ichi Kangyo Trust Company of New York (U.S.A.); Dai-Ichi Kangyo Bank of California (U.S.A.); Dai-Ichi Kangyo Bank (Canada); Dai-Ichi Kangyo Bank Nederland N.V. (Netherlands); Dai-Ichi Kangyo Bank (Schweiz) A.F. (Switzerland); Dai-Ichi Kangyo Bank (Luxembourg) S.A.; DKB International Ltd. (England); DKB Investment Management International Limited (England); DKB Asia Limited (Hong Kong); Chekiang First Bank Ltd. (Hong Kong); DKB Futures (Singapore) Pte. Ltd.; Dai-Ichi Kangyo Australia Ltd.; DKB Crédit Corporation (United States); DKB Securities Corporation (United States); Dai-Ichi Kangyo Bank (Deutschland) AG.