In a move that could lead to the creation of the world's biggest bank, UFJ Holdings said yesterday that it was proposing a merger with the Mitsubishi Tokyo Finan-cial Group.
UFJ said its board had agreed at a meeting to ask Mitsubishi Tokyo to consider a deal. Executives are aiming to combine their operations by March under a single holding company, according to a UFJ executive who spoke on the condition of anonymity.
If completed, the merger would create a bank with ?188.7 trillion (US$1.7 trillion) in assets. On that basis, the combined bank would be larger than Citigroup or Japan's current top bank, Mizuho Financial Group.
UFJ, Japan's fourth-largest banking group, has fallen behind its larger rivals over the last few years in the long struggle with bad loans that once threatened to hobble Japan's financial system.
It was alone among the big banks in reporting a loss for the last fiscal year. UFJ is still carrying about ?3.95 trillion in bad loans, more than any of its larger Japan-ese rivals.
Mitsubishi Tokyo, which many analysts say is the strongest of Japan's top banks, is considering the buyout as a way to gain access to UFJ's extensive branch net-work, according to a report in Nihon Keizai Shimbun.
Shigemitsu Miki, the chairman of Mitsubishi Tokyo, told reporters yesterday in Tokyo that the bank would consider a merger with UFJ.
Folding UFJ into the relatively healthy Mitsubishi Tokyo is seen as a way to strengthen Japan's financial system as a whole and, thus, was greeted as a positive development for the economy.
"This should remove any lingering doubts about the stability of the financial system and so is positive from a macroeconomic perspec-tive," Richard Jerram, an economist for ING in Tokyo, wrote in a report.
The top three banking groups -- Mizuho, the Sumitomo Mitsui Financial Group and Mitsubishi Tokyo -- all returned to the black for the fiscal year that ended in March and met goals to trim bad loans. But UFJ posted its third consecutive annual loss after government regulators forced it to make larger-than-expected adjustments to cover bad loans. UFJ's top three officials resigned in May to take responsibility for the losses.
Regulators issued a warning to UFJ last month for hiding information about the extent of its bad loan troubles from bank inspectors and for failing to miss profit targets agreed to as part of a government bailout.
UFJ also intends to abandon plans to sell its trust bank unit, UFJ Trust Bank, to Sumitomo Trust and Banking, according to the UFJ executive.
Sumitomo Trust yesterday threatened to take legal action against UFJ's proposal to scrap the tie-up plan.
"Our company has replied that it cannot agree to the proposal," Sumitomo Trust said in a brief statement. "We are considering appropriate measures, including legal action, since our company and the UFJ group have signed a legally binding basic accord."
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