Shinsei, Aozora decide to cancel merger plan+

TOKYO, May 14 Kyodo -
Shinsei Bank and Aozora Bank decided to cancel their merger plan concluded last
July at their board meetings Friday, due largely to differences over what
business strategies they should follow once they merge.
Shinsei Bank reported the same day it remained in the red in fiscal 2009 for
the second consecutive business year with a group net loss of 140.15 billion
yen, while Aozora said it swung back into the black with a group net profit of
8.3 billion yen, beating its earlier projection in January of 7 billion yen
profit.
In fiscal 2008, Shinsei logged a net loss of 143.08 billion yen and Aozora
incurred 242.55 billion yen in net loss.
The merger talks hit a snag in working out a business strategy, including
systems integration and choice of core operation. Although the two had set the
merger ratio at one-to-one, Shinsei's continued losses apparently have
eliminated the conditions what would warrant a merger on an equal footing.
They will now consider forming a new business alliance, the banks said, without
providing details.
Shinsei tapped Isuzu Motors Ltd. Director Shigeki Toma, 61, as its president to
succeed President and Chairman Masamoto Yashiro, 81, who is scheduled to resign
following a shareholders meeting in June.
''We canceled the merger plan, but intend to cooperate in areas we can,''
Yashiro said at a press conference, admitting that the merger agreement last
July was hasty.
He also said there was a gap between the two lenders' ideas on capital, as well
as how to integrate their banking systems. ''This past year and a half, I faced
the most difficult task in my business career,'' which he said began over half
a century ago.
The two banks, which incurred huge losses amid the global financial crisis,
reached a basic merger accord last July with the aim of restoring their
financial health and turning around their business.
Aozora President Brian Prince said at a separate press conference that from the
bank's perspective, the merged entity's envisioned capital ratio was
''unacceptable.''
On the possibility that Aozora will resume talks with Shinsei in case the
latter clears necessary capital requirements, Prince said, ''Yes.'' If so, the
talks may be resumed with new terms and conditions such as ''an improved
capital ratio as well as a new merger ratio,'' he said.
As to the resumption of merger talks, incoming Shinsei President Toma also
said, ''We do not rule out any possibilities if there is a merit.''
Shinsei plans to raise up to 100 billion yen in capital by the end of this
fiscal year to strengthen its capital base, Yashiro said.
Prior to Shinsei's earnings announcement on Friday, Financial Services Minister
Shizuka Kamei, commenting on its expected poor performance, said there is a
need for supervisory measures over the struggling bank.
''The government should have conducted tougher supervisions,'' Kamei said at a
press conference. ''The Financial Services Agency should also be questioned
about what it was doing in relation to the bank's massive red ink for the
second straight year.''
Kamei also said he ''scolded'' agency officials for just ''watching (the
situation) silently.''
The financial watchdog is expected to issue a business improvement order to
Shinsei due to the dismal performance.
Shinsei was created from the ashes of the Long-Term Credit Bank of Japan, which
failed in 1998 during Japan's banking crisis, and Aozora's predecessor Nippon
Credit Bank also went bankrupt in 1998. The two lenders were bailed out by the
government with public funds, and the two banks still owe 400 billion yen in
total of the public funds.
Behind the merger breakup, differences remained in terms of what to designate
as the core business of the merged bank, sources close to the matter said.
Shinsei wants to place importance on services for individual customers such as
consumer lending and housing loans, while Aozora was opposing the idea, they
said.
For fiscal 2009, Shinsei will continue to skip paying dividends, while Aozora
will resume such payment at 0.7 yen per share.
Looking ahead, Shinsei said it expects to return to the black with a group net
profit of 12.5 billion yen for fiscal 2010 and plans to pay 1 yen dividend per
share.
Aozora projects its group net profit will expand by 68.6 percent from a year
earlier to 14 billion yen in fiscal 2010, and that it will double its annual
dividend payment to 1.4 yen per share.
==Kyodo
2010-05-14 23:21:28


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