Sumitomo Mitsui Financial Group

Sumitomo Mitsui Financial Group, Inc. (株式会社三井住友フィナンシャルグループ), also known as SMBC Group is a Japanese financial holding company that owns Sumitomo Mitsui Banking Corporation and SMBC Trust Bank. It was founded in 2002 by the transfer of shares from Sumitomo Mitsui Banking Corporation.

History
Sumitomo Mitsui Banking Corporation (SMBC) announced on July 30, 2002 that it would establish a holding company by December and reorganize three related companies, its subsidiary Sumitomo Mitsui Card Company, Sumitomo Mitsui Bank Leasing, and The Japan Research Institute, a sister think tank, as subsidiaries of the holding company. The holding company had a capital of 1 trillion yen, and SMBC CEO Takashi Nishikawa and Chairman Akira Okada each served as president and chairman of the holding company.

In December 2002, SMBC began considering a takeover of the Aozora Bank, which was established after the collapse of the former The Nippon Credit Bank. The Aozora Bank President Hiroshi Maruyama expressed reservations about the proposal, as it would have made it difficult for the bank to go public and repay public funds from the proceeds of the IPO. SMBC competed with a joint venture between the US investment firm Cerberus and the German bank HypoVereinsbank, and the US financial company GE Capital. The offer price was about 100 billion yen, and Cerberus also offered the same amount. However, Cerberus, as a major shareholder of Aozora Bank with a 12% stake, had the right to purchase the bank first if the offer price was the same as that of the other bidders. In April 2003, Cerberus announced the acquisition of the Aozora Bank.

In March 2004, SMBC merged with its 100% subsidiary, the Wakashio Bank. The purpose of the merger was to generate about 2 trillion yen in book profits (merger surplus) by making the Wakashio Bank the surviving company, and to eliminate the hidden losses of SMBC, such as those on stocks.

Merger Exploration
On July 14, 2004, UFJ Holdings announced that it had decided to enter into negotiations with Mitsubishi Tokyo Financial Group (MTFG) for a management integration. In response, on July 30, SMFG announced that it had made a management integration proposal to UFJ. On August 8, it was reported that SMFG had sent a formal proposal document summarizing the detailed terms of the integration plan to MTFG. In response to MTFG's plan to provide an investment of approximately 500 billion yen, SMFG said that it would invest at least 500 billion yen and up to 700 billion yen.

In August 2004, MTFG and UFJ officially announced that they had reached a basic agreement on a full-scale management integration. In response, SMFG proposed a merger ratio of "1 to 1." The recent stock prices of SMFG and UFJ were 1 to 0.77 on average over the past six months, which was an exceptionally favorable condition for UFJ shareholders. However, in February 2005, MTFG and UFJ signed a merger agreement with a merger ratio of "1 to 0.62." SMFG officially decided to withdraw its management integration proposal to UFJ and notified UFJ in writing. On January 1, 2006, MTFG and UFJ Holdings merged to form Mitsubishi UFJ Financial Group.

In February 2005, it was revealed that SMFG was in negotiations with Daiwa Securities Group, with a view to a possible merger of the two companies. The two groups had already established a joint venture, Daiwa Securities SMBC, a specialist in corporate transactions, but they were considering merging their holding companies to achieve a complete integration of the groups as a whole. They hoped to achieve this as early as the 2005 fiscal year. However, on April 8, Daiwa Securities Group Holdings President Shigeharu Suzuki said, "There are no benefits to a merger at this time, and we have no plans to begin negotiations with Sumitomo Mitsui Financial Group."

In September 2006, SMFG acquired SMBC Friend Securities, which was a majority-owned subsidiary of SMBC with a 40% stake.

Repayment of public funds
In July 2002, SMBC announced that it would repay 2,000 billion yen of public funds, which had been accepted in the form of perpetual subordinated bonds. The funds were part of a total of 1.5 trillion yen that had been injected into the Japanese banking system following the financial crisis of the late 1990s. In 2005, SMBC announced a three-year repayment plan, and in October of that year, it repaid an additional 323.6 billion yen.

SMFG initially targeted repaying all of its public funds by the end of the 2006 fiscal year. Mitsubishi UFJ Financial Group (MUFG) and Mizuho Financial Group (MHFG) also had the same goal. These moves were due to a number of factors, including the active resolution of non-performing loans, which had stabilized the financial system, and the increased repayment capacity of the banks. The Financial Services Agency had also encouraged banks to repay their funds early, and some banks, which were reluctant to have their management interfered with by the authorities, had responded.

SMFG announced on October 17, 2006, that it had repaid all of its public funds. MUFG repaid the funds it had inherited from its predecessor, UFJ Bank, in June. MHFG repaid its public funds in July, which had once approached 3 trillion yen. SMFG had initially targeted repaying its public funds by the end of the fiscal year, but it moved up the repayment schedule out of concern that it would be "half a lap behind" the other megabanks. In December 2006, SMFG announced that it would consolidate its headquarters functions in the Ōtemachi district of Tokyo. Since the merger in 2001, SMFG had its head office in the former Mitsui Bank building in Hibiya, with some headquarters functions in Marunouchi. The new headquarters is located next to the former Sumitomo Bank building, and the move was completed in October 2010. SMFG President Masayuki Oku said, "By consolidating our headquarters, we can improve efficiency and realize advanced and fast-paced operations."

Strengthening of Credit Sales Business
On April 27, 2007, SMFG and Mitsui & Co. announced that they would invest a total of ¥400 billion in Central Finance Co., Ltd, a credit card company affiliated with MUFG Group. SMFG would effectively own 20% of CF, giving it a controlling stake. This move was seen as an effort by SMFG to strengthen its credit card business, which was lagging behind those of other megabanks. The move was initiated by CF last summer, without the knowledge of MUFG. Central Finance had been in talks with SMFG since then. Meanwhile, MUFG had been trying to merge CF with its close credit card company, Jaccs. However, CF President Tatsuo Tsutikawa and other executives opposed MUFG's plan. "It was not an option for us to stay with MUFG," Tsutikawa said. "Our unique characteristics would not have been allowed to flourish." At that time, CF was also considering a merger with Quoq Card, a credit card company in the SMFG.

In July 2007, SMBC acquired a portion of the shares of Daiei's credit card subsidiary, OMC Card, from the struggling retailer for ¥74.8 billion. SMBC then became OMC Card's parent company. With the addition of OMC Card to its existing subsidiaries, Sumitomo Mitsui Card and Central Finance, SMBC's total cardholder base exceeded 40 million, surpassing its rival, Mitsubishi UFJ NICOS (37 million). SMBC President Masayuki Oku said, "We want to build a group that balances the strengths of banks, credit card companies, and retail card companies."

In March 2008, SMFG announced plans to list on the New York Stock Exchange by 2011. SMFG believed that listing in the US would be improve its financial transparency and international creditworthiness.

In February 2009, Citigroup, a US financial company in the midst of a restructuring, announced its intention to sell its Japanese subsidiary, Nikko Cordial Securities, a retail brokerage firm. SMFG, along with MUFG and MHFG, expressed its intention to buy the company. In the final round of bidding on April 20, SMFG submitted the highest bid. On May 2, SMFG officially announced the acquisition of Nikko Cordial Securities and the major businesses of Nikko Citigroup Securities for ¥545 billion.

In April 2009, SMFG began considering a preliminary merger of its corporate brokerage business with Daiwa Securities Group, as part of a comprehensive partnership. The corporate brokerage firm Daiwa Securities SMBC, in which SMFG owns 40% and Daiwa owns 60%, was to be merged with part of Nikko Citigroup Securities, with SMFG increasing its stake in the new entity. On May 12, 2009, Daiwa Securities Group President Shigeharu Suzuki said, "a merger of Daiwa Securities SMBC and the major departments of Nikko Citigroup Securities was natural given the two companies' competition." He also said, "a full-scale merger of Daiwa Securities (a retail brokerage firm) and Nikko Cordial Securities was not in the cards." However, the full-scale negotiations that began in mid-July dragged on longer than expected. SMFG wanted to increase its stake in Daiwa SMBC from 40% to over 50%, but Daiwa was reluctant.

On September 10, 2009, SMFG and Daiwa Securities Group announced that they would dissolve the joint venture for Daiwa Securities SMBC. Daiwa would buy all of the SMFG-owned shares, which represented 40% of the total, for ¥173.9 billion. Daiwa Securities SMBC would be renamed Daiwa Securities Capital Markets and become a wholly owned subsidiary of Daiwa.