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Thu, Jul 29, 2004 - Page 12 News List

Merger of Japanese banks to continue


Mitsubishi Tokyo Financial Group (MTFG) and UFJ Holdings' plans to merge and become the world's largest bank will likely proceed despite a court temporarily halting talks, analysts said yesterday.

The value of the merger would far outstrip any settlement that would have to be paid to Sumitomo Trust and Banking, which obtained a court injunction halting the merger talks yesterday, they said.

"MTFG wants to avoid wasting time on the merger so I think they will spend the money to resolve the issue," said SMBC Friend Securities strategist Fumiyuki Nakanishi.

Sumitomo claims the merger talks interfere with its agreement in May to buy UFJ's trust banking unit and the Tokyo District Court agreed Sumitomo would suffer "significant damage" if the negotiations continued.

Media reports said similar claims to Sumitomo's have been settled abroad for between 1 percent to 4 percent of the agreed acquisition price, suggesting a settlement of some ?3 billion to ?12 billion (US$27 million to US$109 million).

"If you think of the hundreds of billions of yen the banks are spending on bad loan disposal, this is throwaway money to become the world's biggest bank," Nakanishi said.

Merrill Lynch analyst Yoshinobu Yamada agreed.

"We see a recommended settlement as most likely, based on a settlement payout from UFJ to Sumitomo Trust," he said in a research note.

UFJ said it planned to file an appeal to the Tokyo District Court ruling on yesterday and had no plans yet to settle or to sell off its trust unit to Sumitomo before merging with MTFG by September next year.

"We still plan to continue negotiations [with MTFG] as a single entity," said UFJ spokesman Akihiro Furutani.

Some analysts speculate that UFJ's holding company might sell off its trust banking arm to Sumitomo and then merge its UFJ Bank with MTFG but an MTFG spokesman said this was unlikely.

"Progressing with talks after leaving UFJ Trust behind would be very difficult," said spokesman Susumu Niitsuma.

As of March, UFJ Trust Bank Ltd. accounted for ?6.27 trillion of UFJ group's ?82.1 trillion in assets and posted an annual net profit of ?37.5 billion .

In comparison UFJ Bank posted a ?369.3 billion annual net loss on ?73.2 trillion in assets.

Yukiko Ohara of Credit Suisse First Boston said that even if UFJ Trust was sold to Sumitomo, the merger would still have merit.

"MTFG, after merging with UFJ, would receive the cash that UFJ would receive when selling the trust operations," she said in a note, adding it would also benefit from synergies in their commercial banking and other business arms.

"Even if the decision of the district court proves to be final, there is little risk that it will lead to a breakdown in the plan for an MTFG-UFJ integration," she said.

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