Tokyo Mitsubishi, UFJ set merger terms

/ Source: The Associated Press

Two Japanese banking giants disclosed Friday terms of their planned 3.99 trillion yen ($38 billion) merger which would create the world’s largest bank, but also said the combination will mean 6,000 job cuts, or about 8 percent of their current global work force.

Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc., agreed last year to merge their operations by October 2005 but had not disclosed the price or specific terms of the deal.

The combination would create a banking giant with assets totaling nearly 190 trillion yen ($1.8 billion) — topping those of the current leader, U.S.-based Citigroup Inc. at $1.19 trillion.

The merger is being challenged by rival Sumitomo Mitsui Financial Group Inc., another of Japan’s biggest banks. Sumitomo Mitsui had offered a one-for-one stock swap last year that would put a premium on UFJ shares. It said late Friday it was studying the latest announcement and will soon respond.

After the merger, the bank will be known as Mitsubishi UFJ Financial Group, or MUFG, the companies said Friday. The merger ratio will be 0.62 Mitsubishi Tokyo shares to one UFJ share, they said.

Shareholders of both banks will be asked to approve the merger proposal at a meeting in June.

Mitsubishi Tokyo and UFJ said they plan to cut 6,000 jobs in three years following the merger. By the fiscal year ending in March 2009, the combined entity will close 170 retail outlets from the more than 900 they have now.

The merged bank will aim for group net profit of 1.1 trillion yen ($10 billion) in the 2008 fiscal year.

UFJ has been losing money, is saddled with troubled borrowers and needs a strong merger partner. Both Sumitomo Mitsui and Mitsubishi Tokyo want the bank’s extensive branch network, individual customer base and its key corporate clients such as Toyota Motor Corp. And they believe size is critical to win against international competition.

Ryosuke Tamakoshi, UFJ Holdings president, would become chairman of MUFG, with Mitsubishi Tokyo President Nobuo Kuroyanagi becoming the president.

Tamakoshi expressed confidence that the two groups’ strengths complement each other and that the merger can win shareholders’ approval. “We made the best decision,” he told reporters. “I think we can gain approval.”

Last year, Mitsubishi Tokyo pumped 700 billion yen ($6.6 billion) into UFJ Bank, the group’s major banking unit, to support UFJ’s battered finances and discourage a Sumitomo Mitsui takeover.

Last week, Sumitomo Mitsui and Daiwa Securities Group Inc., Japan’s second-largest securities company, said they have been seeking ways to strengthen their ties, although they denied reports that merger talks were about to begin.

Standard & Poor’s Ratings Service upgraded its long and short-term ratings on UFJ Bank and UFJ Trust Bank late Friday, citing the stronger likelihood of the planned consolidation between UFJ and Mitsubishi Tokyo.

“The announced integration ratio is within market expectations and more detailed information on the merger has been released,” it said.

Standard & Poor’s also affirmed its long-term ratings on Mitsubishi Tokyo bank and its trust banking unit, saying their credit quality will remain stable if the merger goes according to plan.

UFJ Holdings shares, which rose last year, then dipped and stabilized in recent months, closed at 579,000 yen ($5,500), up 2 percent, shortly before Friday’s announcement. Tokyo Mitsubishi shares, which have zigzagged over the past year, closed at 963,000 yen ($9,100), down 1 percent.