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Tue, Aug 10, 2004 - Page 12 News List

UFJ mulling an alternate takeover bid

ACQUISITION Bad debts spell trouble for the giant Japanese bank. Luckily, more than one suitor wants to relieve it of the liquidity problems it faces

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UFJ Holdings Inc, Japan's fourth-largest lender, said it's considering a hostile bid from Sumitomo Mitsui Financial Group Inc, increasing pressure on Mitsubishi Tokyo Financial Group Inc to win investor support for its offer.

The bank is seeking outside advice regarding Sumitomo Mitsui's offer, while sticking to a plan to merge with Mitsubishi Tokyo to form the world's largest bank, Osaka-based UFJ said in a statement.

The Sumitomo Mitsui proposal, which includes more than ?500 billion (US$4.23 billion) in funding to UFJ, sets the stage for the first bidding contest in Japan's banking industry. UFJ reported a ?91.6 billion first-quarter loss on Friday and is trying to boost capital to reduce bad loans equivalent to more than one-tenth of total lending.

Sumitomo Mitsui's bid "will force Mitsubishi Tokyo to come up with numbers and to beat those numbers and there's going to be a fight with shareholders on this issue," said Kirby Daley, a strategist at Societe Generale Securities' Fimat division.

Mitsubishi Tokyo spokesman Susumu Niitsuma said Sumitomo Mitsui's proposal had ``no impact'' on its negotiations with UFJ that began last month. He said the bank hasn't made an offer of financial support to UFJ.

UFJ, which has more bad loans than any other bank in Japan, last week rejected Sumitomo Mitsui's merger proposal, saying it wants to push forward with its talks with Mitsubishi Tokyo.

ABN Amro Asset Management's Patrick Lemmens, a UFJ shareholder, wrote to the bank last week asking the lender to consider Sumitomo Mitsui's bid. Competition will result in the best terms for investors, he said.

"We are considering the content of the [Sumitomo Mitsui] proposal to show that we are committed to shareholder value and our clients," UFJ spokesman Minoru Soutome said.

UFJ's first-quarter loss compares with net income of ?132.2 billion a year earlier. Its bad loans rose 17 percent during the quarter to ?4.62 trillion, the highest in Japan, while costs to write off or provide against overdue credits at UFJ's two main units surged to ?306 billion.

"The normal reaction after the earnings could be acceleration of the merger process with Mitsubishi Tokyo," said Giovanni Brambilla, who owns UFJ shares among US$362 million of Asian equities he manages at Milan-based Anima SA.

"Mitsubishi Tokyo is the only one with the financial means to inject money into UFJ," Brambilla said.

UFJ's capital adequacy ratio, an important measure of a bank's financial health, fell to 9.01 percent from 9.24 percent in March. Regulators in Japan require banks with international operations to have enough capital to cover 8 percent of their lending.

The lender needs to boost its capital to offset additional bad-loan write-offs in its fiscal second-quarter ending Sept. 30.

"UFJ has to raise capital as soon as it can," said Nana Otsuki, a credit analyst at Standard & Poor's that rates UFJ's main bank unit BBB.

"It urgently has to deal with bad loans and the lack of capital is limiting its lending," Otsuki said.

Talks between UFJ and Mitsubishi Tokyo stalled after a Tokyo court ruled last month they couldn't include UFJ's profitable trust unit in the negotiations.

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