Merger forms world's biggest bank

UFJ's branches are in the west and centre of Japan

Japan's Mitsubishi Tokyo Financial Group has clinched a deal to take over troubled rival UFJ Holdings after weeks of tense negotiations.

The signing of the agreement beats a rival bid from Sumitomo Mitsui Financial Group, although the latter is refusing to throw in the towel.

The deal has formed the world's biggest bank, with 188.7 trillion yen ($1.7 trillion; £0.9 trillion) in assets.

A new holding firm, Mitsubishi UFJ, will be formed on 1 October 2005.

It will merge the two groups' holding companies, commercial and trust banks, and brokerages from that date.

Shares in the new firm, which they hope will be a "premier comprehensive global financial group", will be listed in New York, London, Tokyo, Osaka and Nagoya.

Bad loans

Of Japan's "Big Four" megabanks, MTFG is the second biggest.

There is no guarantee the new bank won't get bogged down in confusion, as was the case for past bank mergers Yoshimasa Nishimura Waseda University

UFJ, the smallest of the four, has been keen for some time to join forces with a larger rival.

Weighed down by bad loans, the bank crashed to a loss of 402bn yen in its most recent financial year, prompting the resignation of senior executives.

After Thursday's deal was announced, Sumitomo - the country's number three - said it would press on with a rival bid for UFJ, whose market value is about $23bn.

It had earlier argued that the proposed MTFG-UJF tie-up would breach an existing agreement it had with UFJ to buy its trust banking operations.

But a court decision that the talks over the trust bank could continue strengthened MTFG's position.

'No guarantees'

Experts have said the merger is not without risk.

The two banks' branch networks appear to fit well together, with three quarters of MTFG's domestic branches located in eastern Japan, and three in five of UFJ's in the west and centre.

"MTFG is strong in wholesale and UFJ in retail, meaning they have totally different business aspirations and skills to achieve their goals," said Yoshimasa Nishimura, a former finance ministry banking bureau head.

But Mr Nishimura, now at Tokyo's Waseda University, warned: "There is no guarantee the new bank won't get bogged down in confusion, as was the case for past bank mergers."

The new chief executive will be the current president of the Mitsubishi Tokyo group, Nobuo Kuroyanagi, and UFJ president Ryosuke Tamakoshi is being earmarked for the role of group chairman.

As part of the merger, which is subject to shareholder and regulatory approval, two brokerage units, Mitsubishi Securities and UFJ Tsubasa Securities, will be combined to form Mitsubishi UFJ Securities.