UFJ plunges after court ruling
 |  Shares in UFJ are plunging Wednesday after a court granted an injunction blocking its merger talks with MTFG. |
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(CNN) -- Shares in Japanese bank UFJ Holdings are plunging Wednesday after a Tokyo court granted an injunction that stops merger talks between UFJ and suitor Mitsubishi Tokyo Financial Group.
The proposed rescue merger between embattled UFJ and MTFG -- Japan's healthiest bank -- would create the world's biggest banking group, with assets of $1.7 trillion.
But a Tokyo district court late Tuesday granted another Japanese bank, Sumitomo Trust & Banking, an injunction blocking UFJ from selling its trust bank unit.
In May, UFJ agreed to sell its trust bank to Sumitomo, but cancelled that agreement earlier this month so it could pursue merger talks with MTFG.
UFJ shares are down about 5.5 percent to 416,000 yen in Wednesday trade. MTFG shares are down 2 percent while Sumitomo Mitsui Financial Group is about 0.7 percent in the red.
The Nihon Keizai business daily reported Wednesday that presiding district court judge Tomonao Onizawa said that UFJ could not negotiate with or provide information to a third party about selling UFJ Trust or merging UFJ Trust with other companies.
UFJ called the decision unfair and said it would appeal. MTFG said the ruling was unexpected.
Sumitomo Trust said the court's decision affirmed its right to pursue its purchase of UFJ Trust, but did not prevent a merger between MTFG and UFJ's core banking units.
But Reuters news agency quoted a financial source close to the MTFG-UFJ talks as having said that UFJ's trust unit is an integral part of the deal.
Last week the Sankei daily reported that Sumitomo Trust would be prepared to drop the action for 60 billion yen ($546 million) in damages plus expenses. Sumitomo Trust called the report groundless.
MTFG and UFJ plan to create a holding company, initially merging their core banking units and later their trust banks.
A MTFG-UFJ deal would create a financial group with assets of 189 trillion yen ($1.7 trillion), putting it ahead of U.S. financial institution Citigroup, with assets of $1.32 trillion.
