as Sumitomo Bank Ltd. and Sakura Bank Ltd. announced plans to merge into the world's second-largest bank, with $927 billion of assets.

In a joint announcement, Osaka-based Sumitomo and Tokyo-based Sakura said the merger would be implemented over two or three years. In the meantime they will operate as a "strategic alliance."

Details were very sketchy. The banks did not say how the merger would be done -- for example, whether one of them would buy the other or both would be absorbed by a new holding company. They also failed to put any value on the deal. They did indicate, however, that during the transition period they would exchange stock.

They also plan to merge business units, subsidiaries, affiliates, and back offices; close overlapping branches; align risk management and other policies; and reduce their combined staff of 31,325 by 6,300. Full integration is expected by March 31, 2002.

The combined market capitalization of the two banks as of Sept 30 was $77 billion, including $47 billion for Sumitomo and $30.5 billion for Sakura. Sakura's market capital had risen 140% over the last six months, and Sumitomo's 10%.

The agreement is the third major bank deal in Japan in the last few months.

In August, Fuji Bank Ltd., Dai-Ichi Kangyo Bank Ltd., and Industrial Bank of Japan announced a three-way merger that would create the world's biggest bank, with $1.3 trillion in assets. And this month Nagoya-based Tokai Bank Ltd. and Tokyo-based Asahi Bank Ltd. announced a $502 billion-asset merger deal.

Both Sumitomo and Sakura have sizeable corporate banking operations in the United States. Sumitomo, which recently sold Sumitomo Bank of California, owns a 4.9% stake in Goldman Sachs Group Inc. Sumitomo now has $27.5 billion of assets in the United States, and Sakura $13 billion.

Some U.S. bankers predict the mergers will create formidable global competitors, even if the companies take several years to integrate their operations.

"You won't see any real impact for another two or three years, but when Japanese banks get through this cycle you'll be seeing much stronger, better-capitalized institutions with a broader and more diversified set of skills,'' said Robert E. Fallon, managing director for Asia-Pacific operations at Chase Manhattan Corp in New York.

"Anyone who takes a position otherwise would be naive," he said.

Others, however, were skeptical about prospects for a successful Sumitomo-Sakura merger. They said that Japan's economy is still in the doldrums, and that banks must deal with the billions of dollars in bad loans they are carrying before they can turn their attention to integrating operations.

The skeptics also said the banks will have to resolve pronounced business-culture differences and integrate a lot faster than planned if they are to achieve tangible benefits.

"Sure you can say that five to 10 years from now Japan will have a very strong banking system, but it's a long way from here to there, and a lot could get derailed along the way," said Scott Pardee, a former investment banker and executive director of the Financial Research Center at Massachusetts Institute of Technology.

One observer was even more pessimistic.

"Japanese banks are all climbing on the merger bandwagon, but they have no idea where the wagon is heading," he said. "It's fine to try to do a Western-style merger, but if they don't put Western-style management in place and can't fire people, because of social constraints, they're never going to solve their bad-loan and low-efficiency problems."

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