• Compiled From Kyodo, Staff Reports

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The Supreme Court on Monday gave the go-ahead to merger negotiations between UFJ Holdings Inc. and Mitsubishi Tokyo Financial Group Inc. that would create the world’s largest banking group.

Presiding Judge Toyozo Ueda turned down an appeal by Sumitomo Trust & Banking Co. against a Tokyo High Court decision Aug. 11 that quashed a ban imposed by the Tokyo District Court on UFJ discussing the sale of UFJ Trust Bank with MTFG.

“It cannot be said that Sumitomo Trust will suffer from considerable damage or be exposed to imminent danger unless merger talks (between UFJ and Mitsubishi Tokyo) are suspended,” Ueda said.

The ruling is expected to accelerate negotiations for a full merger between the troubled UFJ and MTFG. A merger would give birth to a banking group with total assets of about 190 trillion yen, eclipsing the 135 trillion yen of Mizuho Financial Group Inc.

Sumitomo Trust President Atsushi Takahashi said his bank will continue to seek a merger with UFJ’s trust bank unit despite the top court ruling.

“Our policy to ask UFJ for sincere execution of our contract has not changed,” he told an evening news conference in Tokyo. “We will decide with our lawyers what kind of legal steps we can take.”

He did not say whether his bank will file a damages suit against UFJ or how long it would be before it takes further actions.

The suit his bank pursued was meaningful, he said, because it drew public attention to the importance of observing an agreement of mergers and acquisitions.

Welcoming the top court’s decision, a senior official of the Financial Services Agency said the move removed one disruptive factor for the health of the nation’s financial system.

Sumitomo Trust had insisted that UFJ could not start trust merger negotiations with MTFG because it had agreed in May to sell its trust unit, UFJ Trust Bank, to Sumitomo Trust.

UFJ later reversed course, seeking a comprehensive merger with MTFG because it judged its rehabilitation would be unsatisfactory with a business alliance only in the trust division.

UFJ and MTFG on July 16 signed a memorandum of understanding for a merger. Sumitomo Trust filed for a court injunction the same day, claiming the unilateral cancellation of the trust unit sale was a breach of contract.

The subsequent rival bid put forward by Sumitomo Mitsui Financial Group Inc., which has close business links with Sumitomo Trust, to integrate its operations with UFJ further compounded the nation’s banking-sector drama.

On July 27, the Tokyo District Court issued a preliminary order to stop trust merger discussions between UFJ and MTFG. It also turned down UFJ’s appeal against the order Aug. 4.

But on Aug. 17, the Tokyo High Court overturned the lower court ruling, allowing UFJ and MTFG to resume merger talks. Sumitomo Trust immediately appealed that decision to the Supreme Court.

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