Daily Management Review

Japanese megabanks are facing huge problems


The mega-banks of Japan have a problem. It seems that they simply cannot cut their expenses fast enough, writes Bloomberg.

Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., may have surprised investors by reporting on Tuesday an increase in profits in the second quarter, but years of almost zero interest rates and sluggish revenue growth have raised the question of the number of personnel.

MUFG recorded a jump in net profit of 12% to 337.9 billion yen ($ 3 billion), helped by its share of 23% in New York's Morgan Stanley. Sumitomo Mitsui increased its profit by 2.2% to 178.7 billion yen. A day earlier, Mizuho Financial Group Inc. reported less than expected lower profits due to lower reserves for bad loans and higher share prices.

However, the efforts of banks to reduce staff were inadequate. This is not surprising in a country where dismissal of employees is considered undesirable in connection with the tradition of lifelong employment.

Mizuho may have taken the most decisive action among a group of the largest banks, saying on Monday that it would cut 19,000 jobs. Two other megabanks decided to follow the path of automation. MUFG aims to ensure that 30% of the operations by 2024 are carried out through programs, which will mean a reduction of 9.5 thousand jobs. SMFG stated that it automates the implementation of operations, which now require the participation of 1,5 thousand employees.

These figures look great, if you do not take into account two important points. First, job cuts in Mizuho will take more than 10 years. Western banks did this much faster. For example, Bank of America Corp. The number of employees was reduced by a quarter in seven years after the financial crisis.

Secondly, many of these employees will still leave banks. Mizuho's employees are not young. Many of them are over 50 years old. This means that a significant part of staff reduction can occur naturally through the retirement of people and other voluntary resignations.

Meanwhile, with the decline in the domestic market, the triad of mega-banks will largely depend on external expansion. This will entail expensive investments.

Banks also have to increase spending on IT technology to compete with financial and technological start-ups. Large Japanese creditors are working to create digital currencies before the Olympic Games in 2020 in Tokyo. They are trying to create a platform - a competitor Alipay - by the time when thousands of visitors from China come to the capital of the country.

Banks have only one long-term solution to reduce costs: more and faster job cuts.

The economy of Japan in the III quarter rose for the seventh consecutive quarter, demonstrating the longest growth since 2001. However, inflation in the country remains steadily low. Economists closely follow the signs that the tightening of labor market conditions is beginning to cause the necessary wage increase and accelerate the growth of consumer prices.

source: bloomberg.com

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