Japan: Fewer But Better Banks

It looks like Japanese bankers are smarter than we thought. In 2001, analysts scoffed when the nation's financial leaders chose to manage Japan's chronic banking crisis by merging its big banks. What is accomplished, they asked, by merging one institution limping under the weight of billions in nonperforming loans with another in the same shape? Plenty.

The highlight of this year's Global 1000, BusinessWeek's annual ranking of the world's biggest companies by market value, is the terrific performance of Japan's banks. One of them, Mizuho Financial Group Inc., was the biggest gainer on the strength of a 636% jump in its stock price from May, 2003, to May, 2004. Of the 10 Global 1000 companies whose shares rose the most in 2004, four were Japanese banks.

The banks are performing so well because their profits are up and nonperforming loans are down. That's in no small part because of a kick in the pants from banking and economic czar Heizo Takenaka, whose auditors have been ruthless about forcing banks to write off unrecoverable debt. But the scale the banks gained through a series of mergers has also helped; it allowed Mizuho to take an astonishing $21 billion loss last year and still stay in business. Now another megamerger is in the works. Mitsubishi Tokyo Financial Group Inc. (MTF ), the best of the money-center banks, wants to absorb UFJ, the worst. That will create a behemoth with $1.7 trillion in assets, making it the biggest bank in the world.

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