Asahi Bank and Daiwa Bank announced Friday that they have reached a basic agreement to join forces under a single holding company in a bid to survive as stock price tumbles eat away at their capital.

Asahi, with assets of 30.3 trillion yen, will ally with Daiwa and two smaller Kansai regional banks by coming under a Daiwa-dominated holding company based in Osaka by the end of March. Daiwa is half Asahi's size in terms of assets with 15.5 trillion yen.

"Asahi Bank's addition means more expertise, especially in retail banking, a sector in which Asahi specializes," said Daiwa Bank President Yasuhisa Katsuta at a news conference Friday at the bank's headquarters in Osaka.

But while the banks' presidents insisted the alliance was a "strategic move," it was clear that the deal was more about basic survival.

Analysts question whether the deal will create the positive synergies necessary for the banks to make it in an overcrowded market.

The agreement, which includes an alliance with Daiwa's regional partners Kinki Osaka Bank and Nara Bank, will give birth to the nation's fifth-largest banking group with combined assets of 50.4 trillion yen and with business footholds in Tokyo and Osaka.

While this is well below the 97 trillion yen at UFJ Holdings Inc., the smallest of the nation's four megabanks, the banks hope to carve their own niche by growing to become what they dub "a super regional bank."

"By providing detail-oriented and region-based services to customers, we believe we will be able to answer a huge business need that megabanks can't," said Daiwa Bank's senior manager Akiyoshi Ohtani in a Tokyo news conference.

The real challenge, however, is whether the banks will be able to deliver on their pledges to restructure.

The four member banks will later reorganize their operations, while Asahi's wholly owned trust banking arm will be absorbed by Daiwa's trust banking unit.

The four aim to slash a combined 6,300 jobs and 230 branches by April 2003. Bank executives did not disclose which jobs will go.

According to the banks, the agreement means the Daiwa-led group will save 67.8 billion yen a year. Asahi's participation alone will allow the group to cut annual costs by 30 billion yen.

But it remains to be seen whether the latest agreement, which was hammered out quickly, will bring about the promised results.

Asahi's agreement to submit to a holding company headed by Daiwa President Katsuta and Chairman Takashi Kaiho reflects the tight spot it is in. The holding company's tentative name is Daiwa Bank Holdings Co.

Last week, market jitters triggered selling sprees of Asahi shares, which plummeted to a year low of 124 yen on fears that the general stock market slump would make it unable to make dividend payments at the close of fiscal 2001.

Asahi then quickly announced that it was asking Daiwa to discuss terms for consolidation under a holding company. By applying a new rule in the Commercial Code that becomes effective in October, Asahi would then be able to use its reserves to pay dividends, without eroding its capital base.

"If it weren't for worries about dividends, Asahi would probably not have even thought about the merger," said Naoto Odagiri, analyst at BNP Paribas.

Asahi withdrew from an agreed alliance with Tokai Bank and Sanwa Bank last year. It has since been at a loss to find another partner "whose strategic focus matched (Asahi's) emphasis on retail banking," according to Asahi officials.

Asahi said earlier this week that it would skip all dividend payments for the fiscal first half to September 30 and instead pay the full amount at the end of the year in March.

Since Asahi received a taxpayer-funded boost to its capital base in 1999, it must pay dividends on preferred stocks at the end of its business year. Failure to do so could hand the government voting rights at its shareholders meetings.

During Friday's trading, the benchmark 225-issue Nikkei stock average tumbled 230.17 points, or 2.35 percent, to finish at 9,554.99 points, after dipping to as low as 9,382.95 points -- its lowest level since early December 1983.