TOKYO - The UFJ group
formally asked Mitsubishi Tokyo Financial Group Inc to
consider a merger.
Top executives of both
banking groups met Wednesday evening to discuss the
matter. Mitsubishi Tokyo basically agreed to the
proposal, which will create the world's largest
financial services group, with total assets of 190
trillion yen (US$1.7 trillion).
The two groups
are expected to announce a basic agreement on the
proposed merger by the end of this week.
UFJ
Holdings Inc president Ryosuke Tamakoshi, UFJ Bank
president Takamune Okihara, Mitsubishi Tokyo Financial
Group president Nobuo Kuroyanagi and Bank of
Tokyo-Mitsubishi chairman Shigemitsu Miki attended
Wednesday's meeting.
After the meeting,
Mitsubishi Tokyo issued a statement saying it will
"promptly consider" the merger proposal "in a
forward-looking manner". UFJ, which is accelerating its
effort to dispose of non-performing loans, especially
those owed by large borrowers, has apparently concluded
that a business integration with a larger rival will the
public's trust and restore its own financial soundness.
The Financial Services Agency had issued
business improvement orders to the banking group in June
for evading inspections and other violations.
Although UFJ has decided to give up its plans to
sell UFJ Trust Bank to Sumitomo Trust & Banking Co,
Sumitomo has said it will not back down from their
proposed merger, which may have legal consequences.
Many financial analysts welcome the UFJ group's
proposal to merge with the Mitsubishi Tokyo Financial
Group Inc, citing complementary benefits for their
operations.
However, analysts warn that the
soundness of UFJ Bank's assets needs to be improved for
the merger to be successful.
The deal would
create the world's largest banking group, with about 190
trillion yen (US$1.7 trillion) in assets.
Its
loan and deposit balances would be the highest in Japan
as well.
Such advantages in terms of sheer scale
"will contribute to the strengthening of profitability",
according to Setsuko Akiba, director of the stock
research department at Deutsche Securities Ltd.
On the other hand, "this will increase the scale
of risks per borrower", noted Nana Otsuki, chief analyst
at Standard & Poor's Corp. Mitsubishi Tokyo's
strengths consist of transactions involving major
companies as well as international operations, while UFJ
Bank is known for its smaller-scale transactions with
retail customers.
As a result, each will be able
to complement its customer base through the merger.
Nonetheless, for the arrangement to work, the
large amount of non-performing loans held by UFJ must be
cleaned up as quickly as possible.
A BNP Paribas
Securities (Japan) Ltd analyst said that depending on
the fate of the bad-loan disposals, Mitsubishi Tokyo
could scrap the merger plans amid concerns about a
potential erosion of its own financial position.
(Asia Pulse/Nikkei)
Jul 16, 2004
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