The Tokyo District Court ordered a halt Tuesday to merger negotiations between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. in a move that could kill the creation of what would have been the world’s largest banking group.
The order came a day after the court finished hearing statements from UFJ and Sumitomo Trust & Banking Co. The latter has said UFJ’s unilateral cancellation of its plan to sell UFJ Trust Bank to Sumitomo Trust is a breach of contract.
Presiding Judge Tomonao Onizawa said Tuesday that the sales accord UFJ struck with Sumitomo Trust in May is legally binding and that Sumitomo Trust would clearly suffer heavy damage if UFJ enters merger talks with a third party.
UFJ called the court order “extremely unjust” and said it will immediately appeal.
MTFG said in a statement: “Today’s court judgment is not what we had expected and it is surprising. We plan to discuss with our lawyer what we will do in the future.”
A party considering suing another can generally ask a court to issue a provisional order to prevent anything disadvantageous from occurring in the meantime, a court official said.
There is no time limit on the provisional injunction.
MTFG and UFJ signed a memorandum of understanding July 16 to launch talks with the aim of integrating their operations during the first half of fiscal 2005.
Sumitomo Trust then sought an injunction to discontinue the talks, calling the cancellation of its deal with UFJ an unusual measure that would damage the legal grounds underpinning a free economy.
UFJ says Sumitomo Trust’s claim for an injunction lacks a legal basis, adding that a court injunction would have a huge impact on UFJ and MTFG as well as the nation’s economy and financial markets.
The court order will probably delay a basic merger agreement between MTFG and UFJ that had been scheduled for completion by month’s end, bank analysts said.
“The more time it takes for the merger process, opposition against the plan may grow within” MTFG and UFJ, said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute.
Some speculate that UFJ could be forced to pay a penalty to Sumitomo Trust before proceeding with the planned merger.
The merger would create the world’s largest banking group, with total assets of 190 trillion yen, topping the 135 trillion yen of Mizuho Financial Group Inc.
UFJ deadline extension
The Financial Services Agency has allowed UFJ Holdings Inc. to extend the deadline for submitting one business improvement plan to early September, Financial Services Minister Heizo Takenaka said Tuesday.
UFJ Holdings was supposed to submit four business improvement plans to the agency on Monday in connection with its failure to meet its profit targets by more than 30 percent in fiscal 2003 for the second straight year.
UFJ asked the FSA to allow the postponement, saying the holding company will need a considerable amount of time to hammer out a new earnings projection based on an envisioned merger with Mitsubishi Tokyo Financial Group Inc., Takenaka said.
The FSA has a rule that any bank receiving a public fund injection into its capital base must state its earnings goals. If UFJ falls short of its profit goals by more than 30 percent for a third straight year, the government may consider putting it under effective state control.
UFJ Holdings presented business improvement plans Monday to the FSA in response to three business improvement orders it received June 18 over the financial group’s operational problems.
MTFG and UFJ Holdings said earlier this month they have signed a memorandum of understanding to launch negotiations with the aim of integrating their operations during the first half of fiscal 2005.
Neutral Sojitz review
Standard & Poor’s said Tuesday it is reviewing its ratings on trading house Sojitz Corp. with a neutral stance, marking a turnaround from a review for possible downgrading.
The ratings agency said the credit watch status for all of its ratings on Sojitz with negative implications has been revised to “developing,” indicating the ratings could be revised either downward or upward, following the release of the trading house’s new business plan Friday.
Sojitz had held a long-term corporate credit rating of CCC and senior unsecured bond rating of B-plus before it was placed on CreditWatch on June 8.
On Friday, Sojitz Holdings Corp., the parent of the troubled trading house and a problem borrower of UFJ Holdings Inc., said it will seek a capital injection of around 250 billion yen from UFJ, the UBS group of Switzerland and other financial institutions.
The implications of UFJ’s merger plan for its problem borrowers has been the focus of rampant speculation.