[paper] Mizuho should Reconsider the Merger

Yuko Kawamoto: Senior Expert, McKinsey & Company, Japan

Yuko Kawamoto holds a B.A. in Social Psychology from the Faculty of Letters of the University of Tokyo and an M.A. in Economics from Oxford University. Her major published works include Ginkou Shueki Kakumei (Revolution in Banking Profits). She is currently a member of the Finance Service Agency†fs Minister†fs Discussion Committee on the Future Vision of the Japanese Financial System and Administration in Japan.

In the integration process of Mizuho, which extended to two years and seven months, the lack of a sense of crisis among top management and the overgenerous self-evaluation of the effects of the merger had always been regarded as a problem. As pointed out in the report by Genron-NPO, a sense of awareness among the management was far from the reality, which reveals a lack of governance in the management area. Although the report raised questions about the assumption that it will be possible to enhance the degree of integration from within "Mizuho," I think that the integration itself is one of the points in question. Thus, I would like to participate the discussion by once again analyzing the effects of M&As on banks in general.
First, the merits of M&As are usually realized on the cost side, because unit costs are reduced by the use of economies of scale. However, according to the numerical analysis, Japanese banks may benefit little from economies of scale in M&A when the amount of funds exceeds 10 trillion yen. Even so, if the largest cost item, such as system cost, can be reduced, it will contribute to overall cost reduction. However, this is the case when the systems are incorporated into one of the pre-existing systems. The case of Mizuho, which did not employ any of the pre-existing systems after the merger, is extremely rare throughout the world. Although abolishing and merging stores can be highly effective, it is suggested that the work that accompanies it, such as account transfer and others, requires huge amounts of time and labor power. On the other hand, it is becoming apparent that little effect of integration can be expected on the income side. Rather, M&A by its nature requires costs for covering clients' loss and securing qualified human resources, so the effect of the integration will be practically non-existent if a larger integration value cannot be created.

In consideration of the above recognition and the deepness of the roots of the problems presented a?in the report, we ask the fundamental question: Can "Mizuho" continue to operate as an integrated bank? I would say a decision needs to be made after reviewing the framework and considering a new one, while also keeping in mind breaking up the merger as one option.