Japan’s Shinsei Bank and Aozora Bank yesterday confirmed that a merger planned for later this year has been scrapped, with the mid-sized lenders at odds over business strategy.
The announcement sent shares in both companies plummeting and prompted a rebuke from the country’s banking minister toward Shinsei.
“Aozora Bank today announced the cancellation of the merger with Shinsei Bank by mutual agreement,” a statement said without disclosing details.
The collapse of the deal leaves the two lenders — both backed by US private-equity firms — facing the tough prospect of rebuilding in a saturated market. Shinsei, which means “rebirth” in Japanese, and Aozora, which means “blue skies,” suffered in the global financial crisis and last year announced a planned merger that would create the nation’s sixth-biggest commercial bank.
However, negotiations ground to a halt, with Shinsei seeking to expand its retail operations and Aozora more keen on working with regional banks. Reports also said the two sides were unable to agree on a name for the new bank.
“We decided to shelve the merger talks. As talks progressed opinions diverged,” Aozora spokesman Tsutomu Jimbo said.
He added that the banks were still working on details over a possible new business alliance without giving details.
“Instead of spending time on bringing together merger conditions and management strategies, we decided that expanding each of our strengths separately was the top priority,” he added.
Shinsei, which is about one-third owned by US buyout firm JC Flowers & Co, was hit hard by the global credit crunch last year.
Aozora, which is roughly half owned by US investment fund Cerberus, fell deep into the red over its exposure to failed Wall Street giant Lehman Brothers and other bad investments.
Both organizations were bailed out with public money during Japan’s banking crisis of the 1990s and later sold to private investors. Both remain part-owned by the Japanese government.
Japanese banking minister Shizuka Kamei yesterday said that the government should continue supervising Shinsei, “considering that it has received taxpayer money. We should continue issuing strict instructions.”
Shares of Shinsei, which was downgraded this week by ratings agency Fitch, slumped as much as 4 percent in Tokyo afternoon trade following the news.
The bank saw a loss of ¥140.15 billion (US$1.51 billion) in the financial year ended March. Revenue was down 5.9 percent to ¥566.34 billion. For the current fiscal year ending March next year, it forecast a net profit of ¥12.5 billion. Incoming director Shigeki Toma told reporters that a tie-up with another lender was an option, hours after the bank announced it had terminated merger talks with Aozora.
Meanwhile, Aozora said yesterday it bounced back to the black in the last fiscal year due to growth in core earnings and cost-cutting efforts.
Net profit amounted to ¥8.3 billion from a ¥243 billion loss in the previous fiscal year. Revenue fell to ¥146.1 billion from ¥182.6 billion a year ago.
For the current financial year it forecast net income of ¥14 billion on revenue of ¥125.0 billion. Shares of Aozora were 4.16 percent lower in Tokyo trading.
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