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Shinsei and Aozora banks to merge

JAPAN'S Shinsei Bank and Aozora Bank - two money-losing midsize lenders with major stakeholders in the United States - have agreed to merge and will begin the process by next summer, the Nikkei financial daily reported yesterday.

Both banks appear to have received the go-ahead for the deal from their top shareholders and may announce details including merger ratio and top executives as early as this month, the Nikkei said.

US private equity firm JC Flowers & Co holds a 33 percent stake in Shinsei, while Cerberus Capital Management LP owns more than half of Aozora.

The combined entity would be Japan's No. 6 bank with assets of more than 18 trillion yen (US$183.6 billion), according to the Nikkei.

Last week, Shinsei warned that its losses last fiscal year were worse than expected. It forecast a deeper net loss of 143 billion yen for the 12 months through March from the 48 billion yen loss it had been projecting.

The bank is scheduled to report earnings tomorrow.

Aozora is also expected to post dismal annual results.

Brian Prince took over as acting president and chief executive officer in February after Federico Sacasa resigned and the bank apologized for its poor performance. It expects an annual net loss of nearly 200 billion yen.

Bailouts not repaid

The Japanese government bailed out the predecessors of both banks during Japan's last banking crisis in the 1990s, but both have yet to fully repay the public funds received.

When speculation of a Shinsei-Aozora merger first surfaced last month, government officials signaled their approval. Takafumi Sato, head of the Financial Services Agency, said the potential deal would help stabilize the financial system.

In trading yesterday, shares of both banks jumped after the Nikkei report. Shinsei rose 6 percent to 142 yen, while Aozora soared 8.5 percent to 140 yen.


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