Daiwa Bank leads super-regional merger

By staff and wire reports

TOKYO, Japan -- Three banks led by Daiwa Bank will cut more than 3000 workers under a merger plan to create a "super regional bank" in western Japan's Kansai region.

Daiwa Bank, which lost $188 million (23.5 billion yen) last financial year, said Wednesday it will set up a joint holding company by March next year with Kinki Osaka Bank and unlisted Nara Bank.

The aim is to create a regional bank big enough to withstand competition. The three would have assets of about $160 billion (20 trillion yen), still much smaller than Japan's Big Four banking groups.

Daiwa is typically seen as the weakest of Japan's big banks, or "city" banks. That has led to heavy speculation over the last two years that it is close to collapse. It has $6.5 billion (814 billion yen) in bad loans, or around 7 percent of its total.

Restructuring to save $240M a year

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Daiwa and the two smaller regional banks plan to scrap or merge 141 branches over the next four years.

They will also cut more than 3,000 jobs by March 2005 as part of restructuring aimed at saving $240 million (30 billion yen) a year.

Daiwa will also spin off its trust banking division by the end of March, it said.

Setting up a holding company would help Daiwa streamline operations in the Kansai region, where it has a solid retail banking foothold.

Daiwa is a nationwide bank that specializes in lending to small businesses. The other two banks are based in the cities of Osaka and Nara.

The super-regional bank would have a strong presence in the Kansai region, which is Japan's second-biggest population base and takes in the cities of Osaka, Kyoto and Kobe.

Kansai an important industrial hub

Kansai is also an important industrial hub. But it has suffered in Japan's decade-long economic slump. Officials admit Japan is again in recession, which has hurt manufacturers there.

The three banks have been talking about firming up their relationship for two years, Daiwa spokesman Kiyoshi Nakagawa told CNN on July 19.

They already own stock in each other and have a "close relationship," he said. For instance, Daiwa owns 24 percent of Kinki Osaka.

Reuters contributed to this report.