Every time CEOs enter into an agreement as a merger of equals, it is tempting to dismiss it as a face-saving exercise for the acquired company, with limited consequences in the real world.
But the Mizuho Financial Group, which emerged from a three-way merger amid the banking crisis in Japan in 2000, shows the potential risks.
More than two decades later, analysts say one of Japan’s most powerful financial institutions is still suffering from unresolved cultural and structural problems as a result of a merger that has emerged as a combination of ‘equal spirits’.
The legacy came to the fore in technological problems serious enough that regulators have indicated that they can intervene directly with the group’s internal management.
Mizuho’s banking system alone made seven significant mistakes during this year, leading to thousands of stopped ATMs, bank cards being swallowed and foreign exchange transfers interrupted.
Since the merger, Mizuho has struggled to combat a tradition of doing everything in triplicate, from rotating top positions to maintaining overlapping branch networks.
At the extreme end of this practice was a fatal decision to combine several of its IT systems, as it could not reach consensus on which of the three banks’ systems and vendors they should abandon. It did not go well.
After system failures in 2002 and 2011, Mizuho spent $ 4 billion to launch a completely new IT system in 2019, which he said would put an end to a difficult history of errors that plagued the bank from the beginning. .
But after the persistent problems, a concerned financial services agency took the rare step of issuing it last week an administrative order on Mizuho, which goes beyond its previous demands to improve the bank’s control and compliance.
According to the order, the bank must review its scheduled upgrade of IT system and inform the regulators of a plan to implement it in a way that will not cause further disruption. This effectively enables the FSA to investigate the inside of Mizuho’s banking system and intervene if necessary, analysts say.
Mizuho’s system failure contributes to a series of management problems in Japan, including scandals at Toshiba, Mitsubishi Electric and Kobe Steel.
The technological causes of Mizuho’s mistakes seem to be different each time. But an independent investigation mentioned in June human factors, such as lack of communication, low awareness of IT risks and an unwillingness to resolve a crisis directly. “There is a corporate culture that prevents simple improvement,” the report said.
As Japanese businesses try to adapt their operations to a digital age, Mizuho also offers a grim reminder of the cost of slowing down investment in IT engineers and technology. The bank maintains that there is no structural problem with its central banking system, but confidence has deteriorated as each new error has arisen.
Although the $ 4 billion banking system was created on a completely new architecture, experts say it remains complicated because Mizuho relied on four vendors, including three with historic ties to banks merged in 2000: Fujitsu (Dai-Ichi Kangyo Bank), IBM (Fuji Bank) and Hitachi (Industrial Bank of Japan). The system also used one newcomer: NTT Data.
While it is not necessarily problematic to use multiple vendors, Masayuki Endo, a former IT specialist at Mitsubishi UFJ Financial Group, who is now a professor at Shizuoka University, said Mizuho does not play a leading role in a single vendor linked to create the main architecture. design complicated.
A more serious problem for the Japanese banking industry is the lack of computer engineers and data scientists compared to US banks such as JPMorgan Chase and Goldman Sachs, which have spent a lot of money recruiting talent and acquiring technology to threaten new fintech – repel competitors.
“In Japan, vendors supply about 70 percent of the IT engineers and the ratio of IT specialists in the banks is very low,” Endo said. Due to system failures, it is difficult for banks to solve the technical problems internally.
After investing heavily in the new banking system, Mizuho may be reluctant to admit that there may be underlying flaws with its structure. But it must also acknowledge that the systemic crisis it is currently facing is one of the legacy costs of not fully completing a merger 20 years ago.