Sumitomo 'seeks bank merger ban'
(CNN) -- Japan's Sumitomo Trust & Banking Corp. will seek an injunction to halt merger talks between its rival banks UFJ Holdings and Mitsubishi Tokyo Financial Group, Japanese media report.
The merger negotiations, announced Wednesday, would create the world's biggest banking group with assets of 190 trillion yen ($1.75 trillion).
Sumitomo said UFJ's decision to cancel a May 21 agreement to sell UFJ Trust Bank to Sumitomo was a serious breach of the contract, Kyodo news agency reported Friday.
Kyodo, quoting unidentified sources, said Sumitomo would take its case for an injunction to the Tokyo District Court as early as next week.
It said Sumitomo would also sue UFJ Holdings, UFJ Bank President Takamune Okihara and others for damages in connection with the case.
UFJ, Japan's No. 4 bank, and Mitsubishi Tokyo -- the most profitable of the big four groups -- are expected to provide an outline of their merger proposal later Friday.
The UFJ group said Wednesday that as part of its merger negotiations with Mitsubishi Tokyo, it had canceled its May 21 plan to sell UFJ Trust Bank to Sumitomo Trust. Under the original deal, Sumitomo Trust and UFJ Trust Bank would have integrated their operations and create Japan's biggest trust bank.
UFJ, which lost $3.7 billion last financial year, is the weakest of Japan's big four banking groups, and has been struggling to clean up its balance sheet.
A merger would reduce Japan's mega-banks to three -- Mizuho, Sumitomo Mitsui and the merged UFJ-Mitsubishi Tokyo.
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, a likely scenario was 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.
