Banking giants UFJ Holdings and Mitsubishi Tokyo Financial Group can hold merger talks to form what would be the world's biggest bank, a Japanese high court ruled yesterday.
But rival Sumitomo Trust, which had sought to halt the talks, said it would appeal the decision to the Supreme Court.
Tokyo High Court spokeswoman Chieko Kamiyama said the court scrapped an earlier lower court decision and agreed to allow merger talks to go forward.
With combined assets of about ?188 trillion (US$1.7 trillion), UFJ and Mitsubishi Tokyo banking operations -- said it would ask the Supreme Court to rule on the case. An appeal would be filed as early as today, Sumitomo Trust spokesman Kazutaka Ogata said.
While the appeal puts off a final decision for now, yesterday's decision still comes as a setback for Sumitomo Trust.
Sumitomo Trust had won an injunction from the Tokyo District Court to stop the UFJ-Mitsubishi Tokyo merger talks on July 27.
UFJ had immediately appealed, saying the agreement with Sumitomo Trust was not legally binding.
The wrangling over the proposed merger is unusual for Japan, where such major link-ups are still relatively new.
But the stakes are high, because the merger between Mitsubishi Tokyo and UFJ would change the landscape of Japan's banking sector with the new group at the top, Mizuho Financial at No. 2 and Sumitomo Mitsui a distant third.
UFJ and Mitsubishi Tokyo had planned to announce a basic agreement toward a merger by the end of last month but had to postpone it because of the lower court decision. But both sides stressed they were still interested in the merger.
Mitsubishi Tokyo spokesman Seiji Itai said there was no change in its stance of wanting a merger with UFJ, including its trust banking unit.
"We welcome the court deci-sion," he said.
Sumitomo Mitsui Financial Group, which includes Sumitomo Trust, announced its own bid Monday for a merger with UFJ, saying it would offer a more egalitarian deal than Mitsubishi Tokyo and give UFJ at least ?500 billion in financial aid.
Sumitomo Mitsui said yesterday its merger offer was still on.
"We think the merger between our group and the UFJ group is the best choice for the groups' investors, customers and workers," it said in a statement, adding that it will continue to woo UFJ with proposals.
In issuing its decision, the court said that if UFJ wants to press on with merger talks with Mitsubishi Tokyo it must first come up with ?7.5 billion as a security payment for possible damages for Sumitomo Trust.
UFJ, Mitsubishi Tokyo and Sumitomo Mitsui are three of the country's top "Big Four" banking groups. Although the other three had posted profits for the latest fiscal year, UFJ recorded a deep loss totaling nearly ?403 billion.
Analysts and the Tokyo stock market have generally welcomed the possible merger as a stabilizing force for Japan's overall financial system. But fears remain about the health of UFJ's books, which are saddled with loans to troubled borrowers such as giant retailer Daiei. It has also been reprimanded by the Financial Services Agency for being evasive during regulatory inspections.
Analysts have warned that the sheer size of such a merger is likely to be filled with problems, from clashes of corporate cultures to the simple task of linking computer systems.
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