Business

SMFG bid doesn't alter UFJ-MTFG plan

Effort to outstrip competitor fails to halt moves to integrate operations

Compiled From Wire, Staff Reports

UFJ Holdings Inc. said Monday there is no change in its plan to integrate its operations with Mitsubishi Tokyo Financial Group Inc., despite Sumitomo Mitsui Financial Group Inc.’s rival merger bid.

UFJ, at the center of a rare takeover battle in Japan’s banking industry, confirmed it has received a written merger proposal from SMFG.

“Our plan to merge with MTFG has not changed. But we are carefully considering the proposal with outside specialists,” UFJ said in a statement.

SMFG said it has offered UFJ a more than 500 billion yen capital increase for a merger, countering an MTFG bid.

“We are offering a merger as equal partners. Although our earlier proposal was turned down (by UFJ), we believe the new offer is worth considering,” an SMFG spokesman said.

The proposal also calls for the establishment of a joint holding company by April, he said.

Combined with the 300 billion yen that Sumitomo Trust & Banking Co. envisaged to pay for buying UFJ Trust Bank as agreed in May, the SMFG-Sumitomo Trust alliance could provide UFJ with a total of nearly 1 trillion yen in financial support, as SMFG is said to be ready to offer a capital injection of up to 700 billion yen, SMFG sources said.

The offer is thus intended to outstrip MTFG in negotiation terms. The banking group decided to boost the offer because UFJ is moving to provide greater loan-loss provisions for outstanding loans to troubled large corporate borrowers earlier than planned, they said.

But it may be hard for UFJ to switch negotiation partners immediately because it has signed a contract, including exclusive negotiating rights, with MTFG.

UFJ, the weakest of the country’s four mega banking groups, announced last month it would aim to merge with MTFG, the third largest.

But the Tokyo District Court later issued an injunction that effectively put the UFJ-MTFG merger talks on hold.

UFJ’s merger with either bank would create the world’s largest banking group.

UFJ said Friday it posted a net loss of 91.6 billion yen in the April-June quarter, citing rising credit costs and additional writeoffs and provisions for bad loans.

As a result of its loans reclassification exercise, UFJ’s total nonperforming loans swelled to 4.62 trillion yen from 3.95 trillion yen at the end of March, pushing the bad loans ratio to total loans up by 1.74 percentage points to 10.24 percent, the worst among major Japanese banks.

Coronavirus banner