Japan's mega-banks eye merger
(CNN) -- Japan's No. 4 bank UFJ says it will seek a merger with the Mitsubishi Tokyo Financial group that would create the world's biggest banking group.
UFJ took the decision at an extraordinary board meeting in Tokyo Wednesday, a spokesman told media.
UFJ is the weakest of Japan's big four banking groups, and has been struggling to clean up its balance sheet.
It lost $3.7 billion last financial year and has a $12.1 billion bad loan provision on its books.
Mitsubishi Tokyo (MTFG) is expected to agree to a merger, which would create a banking group with total assets of about 190 trillion yen ($1.76 trillion) and would reduce Japan's mega-banks to three - Mizuho, Sumitomo Mitsui and the merged UFJ-Mitsubishi Tokyo.
The Tokyo Stock Exchange suspended trading in the two banks' shares Wednesday morning. When trading in MTFG resumed, it jumped almost 10 percent to 1.05 million yen. UFJ is bid-only at its upper limit of 522,000 yen, after last trading at 472,000 yen.
Other banking shares are also higher, with gains of about 2.8 percent for Sumitomo Mitsui and 1 percent for Mizuho.
ING Asia chief economist Richard Jerram said Wednesday a merger was positive from a macroeconomic perspective and would remove any "lingering doubts" about the stability of Japan's financial system.
Jerram said it was unlikely that Mitsubishi Tokyo was coming to the rescue of UFJ under pressure from regulators or the Japanese government.
He said Mitsubishi Tokyo had a history of standing alone in the 1990s as the only healthy Japanese bank, and its move was more likely a bid to secure a competitive position against the two other mega-banks.
In May UFJ Holdings posted a group net loss of 402.81 billion yen ($3.7 billion) for the year that ended March 31, compared to its 608.92 billion yen loss a year ago.
It was UFJ's third straight year of losses. It increased its bad loan write-offs to 1.312 trillion yen ($12.1 billion) from a planned 813 billion yen.
According to the Nihon Keizai business daily, UFJ is planning a comprehensive merger, including its trust banking operations. It notified Sumitomo Trust & Banking Co. on Tuesday of its intention to scrap the proposed sale of UFJ Trust Bank, the newspaper said.
UFJ has unofficially notified the banking regulator, the Financial Services Agency, about the planned merger talks.
Separately, Mitsubishi Tokyo has told the regulator that it is interested in a merger with UFJ.
According to the Nihon Keizai, the FSA is believed to support the merger as part of restructuring Japan's financial system.
The newspaper said a likely scenario would be for the holding companies of the two groups -- Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. -- to merge this fiscal year. This new entity initially would have four banks under its control: Bank of Tokyo-Mitsubishi, Mitsubishi Trust & Banking Corp., UFJ Bank and UFJ Trust Bank.
The four banks would then be consolidated in one or two years into a city bank and a trust bank.
