The Coming Week in Asia: In the New Japan, Banks Mull What Once Was Unthinkable - TheStreet

The Coming Week in Asia: In the New Japan, Banks Mull What Once Was Unthinkable

Recent merger talk throws the ongoing adoption of American business culture into sharp relief.
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Japan is a country of tradition -- and change. The ritual of the tea ceremony and the graceful drape of the kimono exist harmoniously with an appreciation of red wine and stylish new platform shoes.

The embrace of seeming contradictions isn't limited to the nation's highly developed cultural realm. In Japanese industry, where exchanging business cards is itself a nuanced art, the embrace of Western customs, like mergers and acquisitions, is starting to take hold.

Last Wednesday,

Sumitomo Bank

and

Sakura Bank

became the latest financial titans to acknowledge merger might be imminent. A pairing of the two, if completed, would create the world's second-largest bank, with assets of $1.4 trillion.

The news helped push Japan's banking shares, which have been pressured both by dud loans and competition from foreign institutions over the past few years, sharply higher. To be sure, they subsequently gave back some of those gains and are unlikely to rise much unless fears of a further selloff on Wall Street, which slid 5.9% last week, subside.

More than sheer size, the Sumitomo-Sakura tie-up represents the most important change yet in the mindset of Japanese business. Both banks are pillars of the Japanese financial world. Sumitomo stands at the core of the huge and sprawling Sumitomo financial-industrial group, one of the half dozen that stand at the heart of Japan Inc. It dates back to the 1500s.

Sakura is the center of the rival

Mitsui

conglomerate, members of which offer everything from finance to shipping. It, too, has a storied past. Its founder managed tax revenue for the Shogun in the mid-1600s, when the country was as closed as the banking system was a few years ago.

Until recently, banks from competing groups, known as

zaibatsu

before World War II, wouldn't cotton to the thought of merging. Now, with foreign banks and brokerages invading, historic rivalries are giving way to marriages for survival. Hang together, they might reckon, or hang separately.

That sentiment, analysts say, might soon cross from the lace curtains of banking to the smokestacks of factory Japan, a development that may ultimately benefit foreigner and Japanese alike.

"M&As across zaibatsu borders are bound to creep up," says James Fiorillo, senior analyst at

ING-Baring Securities

, who watches the banks. He says that will benefit the big (and mostly American) banks that have experience advising in those situations.

The Japanese government is also adopting traditions that originated abroad. Once proud of its fiscal rectitude, the Japanese government is starting to look like that of the old America.

It spends. And spends. And spends some more.

Its total accumulated debt could equal more than 100% of GDP by the end of the year. The spending, which has totaled about $1.1 trillion over nine fiscal stimulus packages aimed at boosting the economy out of its nearly 10-year funk, may get another addition this week. As early as Wednesday, the government may announce a 10th package that will likely amount to at least $100 million.

That money is largely responsible for keeping the economy moving in the right direction. Many people think without it, the economy would contract -- which it did for five quarters before snapping the skid earlier this year.

Whether it will push Japan to a self-sustaining recovery, however, is another question entirely.