Prosecutors raided UFJ Holdings Inc's banking unit yesterday as they investigate allegations that the bank lied to government authorities about bad debts, an official said.
The raid comes a day after financial regulators filed a criminal complaint, asking prosecutors to investigate whether UFJ obstructed an inspection last year by hiding documents and computer files containing information about ailing corporate borrowers.
A bank official, speaking on condition of anonymity, confirmed the raid but refused to give details. Tokyo prosecutors, who rarely comment on their actions, refused comment. Nationally televised news showed footage of about a dozen investigators filing into UFJ Bank's Tokyo headquarters.
The raid is a major embarrassment for UFJ Holdings, which plans to merge with Japanese banking giant Mitsubishi Tokyo Financial Group Inc (MTFG) by October next year. UFJ has also been trying to fend off an aggressive merger bid from another rival, Sumitomo Mitsui Financial Group Inc.
But money-losing UFJ's woes have been widely known for years. And the latest developments are unlikely to obstruct a merger deal.
On Friday, credit ratings agency Standard & Poor's said its ratings on UFJ Bank remain on credit watch with positive implications and those on Mitsubishi Tokyo remain on credit watch with negative implications.
"As MTFG has already reaffirmed its commitment to consolidating with UFJ, the impact on the UFJ banks' ratings is limited at this stage," Standard & Poor's credit analyst Nana Otsuki said in a statement.
The outlook for Mitsubishi Tokyo will depend on details of the merger, which are still undecided, according to Standard & Poor's.
Mitsubishi Tokyo officials have repeatedly stressed that a criminal investigation won't affect their strong interest in the merger. Sumitomo Mitsui hasn't also given up on its effort.
A combination of UFJ with either Mitsubishi Tokyo or Sumitomo Mitsui would create the world's biggest bank with assets at more than ?180 trillion (US$1.6 trillion), surpassing Citigroup Inc.
Whichever bank gets left out will languish a distant No. 3 among Japan's financial giants, whose numbers have been dwindling in recent years after an onslaught of consolidation.
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