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Ailing UFJ Holdings Inc. announced Friday that it expects a net loss of 780 billion yen for the first half of fiscal 2004 amid pressure to speed up its bad-loan disposals before a planned merger with Mitsubishi Tokyo Financial Group Inc.

UFJ, which has also been sounded out by Sumitomo Mitsui Financial Group Inc. over a merger, said it has decided to receive 700 billion yen in financial support from MTFG at the end of September to help cover the loss and strengthen its relationship with the planned partner.

With the capital injection, UFJ will keep its capital adequacy ratio above 8 percent — a minimum requirement for banks that carry out international operations.

The announcement comes at a time when the debt-ridden bank is stepping up efforts to clear bad loans extended to large-lot borrowers such as retailer Daiei Inc. and trading house Sojitz Holdings Corp.

“Integration with MTFG would release us from bad-loan problems, help us focus on forward-looking business development and give us an immediate new start,” UFJ Holdings President Ryosuke Tamakoshi told a news conference.

UFJ, the weakest of four Japanese mega-banking groups, significantly revised its initial earnings projection. UFJ forecast in May an interim group net profit of 120 billion yen in the six months to September.

The sharp revision of the forecast “was all due to costs of bad-loan writeoffs. We were too slow to tackle our bad-loan problems,” Tamakoshi said.

UFJ also forecast a 670 billion yen group net loss for the current fiscal year through March.

The banking group has thus decided to pay no annual dividends on its common and preferred stocks.

UFJ and second-ranked MTFG signed a basic merger accord in mid-August in a deal that would create the largest banking group in the world, with total assets of about 190 trillion yen.

With Japanese banks forced to form alliances to survive global competition, the two groups plan to integrate their banking, trust banking and brokerage operations under a holding company by October 1, 2005.

Tamakoshi said the group will determine a merger ratio with MTFG before a regular shareholder meeting scheduled for June next year.

Meanwhile, SMFG issued a statement late Friday night criticizing UFJ’s decision to accept MTFG’s financial support and its failure to comment on the one-to-one merger ratio SMFG proposed last month for a SMFG-UFJ merger.

“What UFJ announced today seriously hurts UFJ shareholders’ interests,” SMFG said.

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