UFJ Holdings Inc. and Mitsubishi Tokyo Financial Group Inc. signed a basic accord Thursday to merge their operations in October next year to create what would be the world’s biggest banking group, with assets worth 189 trillion yen.
The agreement by UFJ, the weakest of Japan’s four mega-banking groups, and second-biggest MTFG came a day after the Tokyo High Court cleared the way for their full merger, overturning a lower court injunction that had virtually blocked their tieup talks.
MTFG is expected to quickly give its weaker partner a 700 billion yen fund injection.
The agreement also means the end of a rare bidding war in the Japanese banking industry, involving third-ranked Sumitomo Mitsui Financial Group Inc, although UFJ did not elaborate on when and how it will formally turn down SMFG’s offer.
According to the agreement, the name for the new holding company will be Mitsubishi UFJ Holdings Inc., which will consist of Bank of Tokyo-Mitsubishi UFJ Ltd., Mitsubishi UFJ Trust and Banking Corp and Mitsubishi UFJ Securities Co.
“We will create a premier comprehensive global financial group to win worldwide competition and provide customers with products and services of the best quality,” Nobuo Kuroyanagi, president and CEO of MTFG, told a joint news conference.
Ryosuke Tamakoshi, president and CEO of UFJ, said the alliance would bring stability to UFJ’s financial health.
“We will be able to accelerate rehabilitation of our large borrowers,” Tamakoshi said.
The two groups plan to outline the deal further and sign a contract by June, Kuroyanagi said.
To shore up the debt-strapped UFJ, MTFG or its bank unit, Bank of Tokyo Mitsubishi, will inject up to 700 billion yen into UFJ Holdings or UFJ Bank by the end of September to cover losses caused by its bad loans, they said.
The capital injection counters a bid by SMFG, which said Wednesday it was ready to provide a capital increase of more than 500 billion yen. SMFG announced the proposal to garner support from UFJ’s shareholders and employees by emphasizing the merits of a merger with SMFG.
The planned capital injection by MTFG would ease lingering worries over the health of UFJ, which is under heavy pressure to reduce its bad debts drastically by March to meet a target required by the government.
UFJ has said it plans to clear up its mountain of bad debts before the scheduled merger. UFJ’s bad-loan ratio was 10.24 percent at the end of June and higher than 8.5 percent at the end of March.
Thursday’s pact was a big step toward their merger.
The Tokyo District Court two weeks ago issued an order banning UFJ from including its trust business in talks with MTFG because it had earlier agreed to sell UFJ Trust Bank to Sumitomo Trust & Banking Co. The same court rejected UFJ’s appeal against the injunction last week.
Following the high court decision Wednesday, Sumitomo Trust immediately appealed to the Supreme Court.
UFJ and MTFG announced the signing of a memorandum of understanding July 16 to launch talks with the aim of integrating their operations during the first half of fiscal 2005. UFJ also said it had scrapped its agreement with Sumitomo Trust to sell its trust unit.
In filing for the injunction, Sumitomo Trust called UFJ’s unilateral cancellation of the trust unit transaction a breach of contract.
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