The Industrial Bank of Japan, Ltd.
The Industrial Bank of Japan, Ltd.
Assets: ¥33.87 trillion (US$271 billion)
Stock Index: Tokyo Osaka
The Industrial Bank of Japan, or IBJ, is almost exclusively a banker to industry. It is regarded by many as a semi-autonomous government agency that acts closely with various ministries to achieve wider national economic goals. It is, in effect, the banker’s bank, acting as a primary source of funds and coordinating new bond issues and debentures for government and industry.
The IBJ was created by the Japanese government shortly after the Sino-Japanese War (1894-1895). Only 25 years before, Japan had ended a centuries-old isolation and embarked on an ambitious modernization. But Japanese industry required inexpensive and reliable sources of raw materials. China held great promise, not only for Japan but for several other imperialist powers, because of its vast forestry and mineral resources.
As a result of its war with China, Japan won rights to these resources in addition to substantial war-reparation payments. The Japanese government studied ways to manage these payments most efficiently, and created three development banks. In 1902 it chartered the Kangyo Bank for agricultural finance, the Hokkaido Takushoku Bank for the development of Japan’s northernmost island, Hokkaido, and the Industrial Bank of Japan to supply stagnant domestic industries with long-term funding and to develop the bond market.
The Russo-Japanese War (1904-1905) was Japan’s first engagement with a European power. Its victory in that war greatly increased Japanese influence in the region, but the mobilization seriously depleted bank capital. With Japanese industries unable to finance further expansion, the IBJ borrowed heavily from European sources to make capital available to Japanese industry for modernization and expansion.
The IBJ grew with Japanese industry throughout the 1920s and 1930s by financing the construction of integrated steel mills and modern shipyards. As an instrument of government, the IBJ was motivated neither by private interest or private profit.
A right-wing militarist element, which by the mid-1930s had gained control of the government, sought to establish Japanese supremacy in Asia. Opposed at first by political moderates and Japanese industrialists, the militarists eventually won power. By the time the government declared a “quasi-wartime economy” in the late 1930s, the zaibatsu or large “money clique” conglomerates, participated in the mobilization—as much for profit as for political survival.
With the zaibatsu brought under the same strict central control as agencies like the IBJ, the Japanese economy was forcibly concentrated in order to raise economic efficiency. While commercial businesses concentrated on military production and the development of occupied territories, the IBJ became involved with the increasingly burdensome task of financing the war against China, and later against the United States; during this time the bank’s debts increased from ¥2.7 billion to ¥14.6 billion.
The IBJ survived relatively intact. Instead of financing industrial expansion, however, its new task under the occupation was to assist in the reconstruction of Japan. The bank created a special reconstruction-finance department staffed by 96 men. The department was separated from the IBJ in 1947 and named the Nippon Fukokin Kinyu Koku, or Japan Reconstruction Finance Bank and reorganized in 1952 as the Japan Development Bank.
The American occupation authority undertook a massive decentralization of the Japanese economy by breaking up the zaibatsu and forcing the government to make state-owned businesses, including the IBJ, private. Under the Long Term Credit Bank Law, the IBJ was sold to private investors in 1950. Its purpose, however, remained the same: to provide long-term funding for stagnant and undercapitalized firms. The bank continued to serve in a semiofficial capacity and maintained its connections in government and its access to key ministries and agencies.
Japan’s industrial sector, which the IBJ had concentrated on developing for over 50 years, finally began to mature in the early 1950s. For nearly 20 years the Japanese economy maintained an annual growth rate of 10%, which provided the IBJ and other long-term credit banks with strong and stable development. As the largest issuer of government and corporate bonds, in addition to its own debentures, the IBJ held tremendous sway over the determination of long-term interest rates.
The appearance of IBJ representatives on the boards of its clients became more conspicuous after the securities crisis of 1966. The IBJ appointed presidents to three of the four major securities houses: Yamaichi, Daiwa, and Nikko, and played a major role in the creation of Nippon Steel, the world’s largest steel company, through the merger of Yawata Steel and Fuji Steel in 1970.
Japanese industry, which depends heavily on imported raw materials, was dealt a severe blow during the 1973 oil crisis. Many of the IBJ’s largest clients were suddenly faced with drastically weakened markets and even bankruptcy. In the recession that followed, capital investment was either scaled down or canceled altogether. As interest rates rose, the bank’s clients paid back much of their debt by liquidating assets or arranging their own financing—either taking their business back from the IBJ or seeking financing in less competitive foreign-loan and bond markets. Within Japan, IBJ debentures suffered from the developing gensaki bond-repurchase market and an increasingly sophisticated Tokyo stock market.
Threatened with the possibility of its own redundancy in several important markets, IBJ altered its business strategy. The research department sorted IBJ’s existing and potential clients into ones that were successful, ones that needed reorganization, and ones that should be abandoned. The IBJ became more active in its clients’ industries and, with the full support of the Japanese government, remade several businesses. Not surprisingly, at times the IBJ was resented for the ruthlessness of its reorganization schemes and criticized for the arrogant and presumptuous manner in which its representatives presided over clients’ board meetings.
Nevertheless, several troubled companies, including Toyo Soda, Nippon Soda, the Keisei Electric Railway, and Chisso Chemical, were successfully rehabilitated. For that reason many regard a loan from the IBJ as an insurance policy. Competitors made similar industrial rescues, but often lost hundreds of millions of yen in the process. The IBJ, on the other hand, made a profit from saving companies.
One of the largest projects to be underwritten by the IBJ was a $3.2 billion petrochemical complex at Bandar-e-Shapur (later Bandar Khomeini) in Iran. Iranian revolutionaries halted construction on the plant in the early 1980s, when it was 80% finished, because they regarded Japan as too sympathetic to the United States. The plant was later bombed by Iraqi jets, leaving its eventual completion in doubt.
Although a late entrant into international finance—the IBJ received permission to establish overseas branches only in 1971—the IBJ was nevertheless quick to notice a weakening in the Third World lending market. In 1983 the bank refused to lend money to the Philippines in anticipation of a credit crisis, which duly materialized a few months later. The IBJ has not, however, shunned all investment in developing countries; it has simply managed its risk differently. Unlike many of its competitors, it has chosen to participate in specific projects rather than lend outright to government sponsors.
Careful risk management, in addition to a statutory right to finance itself with more stable long-term debentures, earned the IBJ a successful entrance into European financial markets, allowing it to become a major player in the securities industry. The IBJ remained a lead banker to about 180 of Japan’s top 200 firms, marketing both yen-dominated bonds and Japanese government securities.
Much of the credit for the IBJ’s recovery from the crisis of the 1970s goes to Kisaburo Ikeura. President of the bank from 1974 to 1983, Ikeura was replaced as president by Kaneo Nakamura, but continued to serve as chairman. One question facing Nakamura was whether to expand into the more stable but highly competitive consumer-banking market. Because it suffered from a lack of branches, any growth in this area would have had to come externally—that is, by acquisition. Instead, the IBJ decided to expand in international securities markets.
The IBJ already occupied an important position in European markets with an English subsidiary, IBJ International, and the Industrial Bank of Japan (Switzerland), which conducts both banking and securities services. The IBJ expanded into the United States by purchasing, through subsidiaries, Aubrey G. Lanston Company, an important dealer in U.S. government securities. Although the U.S. government preserved management control of Lanston, the IBJ has still gained a “ringside seat” at the Federal Reserve.
The IBJ’s broad exposure to international markets has made it more sensitive to changes in the value of the yen. Its emphasis on long-term credit, however, brings much of that risk to within acceptable margins. While it competes with the Long Term Credit Bank and the Bank of Tokyo, the IBJ has established and (with government help, some say) protected an important niche in the institutional banking and securities markets. In addition, the IBJ must compete in an increasingly less protectionist international environment. This has resulted in a lower, though not altogether unpredictable, squeeze on growth rates and profits.
The Industrial Bank of Japan Trust Company; IBJ Schroder Bank & Trust Company; The Industrial Bank of Japan (Canada); IBJ International Limited; Industriebank von Japan (Deutschland) Aktien-gesellschaft; The Industrial Bank of Japan (Luxembourg) S.A.; The Industrial Bank of Japan (Switzerland) Limited; IBJ Asia Limited; IBJ Merchant Bank (Singapore) Limited; P.T. Bumi-Daya-IBJ Leasing; IBJ Australia Bank Limited.