Shinsei, Aozora Call Off Merger

TOKYO (Reuters) – Shinsei Bank (8303.T) and Aozora Bank (8304.T), the two Japanese banks owned by overseas investors, have decided against a merger in October as planned, because they could not agree on a business strategy, the Nikkei newspaper said on Saturday.

Shinsei wants to expand its retail banking business, which includes consumer finance, while Aozora wants to focus more on lending with Japanese regional banks, the Nikkei said, without citing sources.

The merger will be abandoned or indefinitely postponed, the paper said. Shinsei said in a statement that nothing had been decided, while no one was available for comment at Aozora.

Shinsei Chief Financial Officer Rahul Gupta acknowledged in a conference call with reporters this month that the merger talks were “progressing slowly”. The combined bank would have been Japan’s sixth-largest by assets.

The Nikkei reported in January that the merger would likely be delayed, due to difficulties with systems integration and pending the outcome of inspections by Japan’s regulator, the Financial Services Agency.

Both banks were undergoing inspections and may need to review their one-for-one merger ratio pending the outcome, the Nikkei said at the time.

The outcome of those inspections is still unclear, but Shinsei said this month it may need to make additional reserves and write-downs related to some of its real-estate loans and its consumer finance business.

It is also unclear whether there have been difficulties between the major shareholders of both banks. Shinsei is about one-third owned by buyout firm JC Flowers and Co, while Aozora is majority-owned by Cerberus Capital Management.

The banks announced their plans to merge last July, months after booking a combined loss of 385.6 billion yen ($4.3 billion) for the year to March 2009. They have since returned to profit, meaning the merger may now be less of a priority than during the financial crisis.

Both banks have yet to fully repay the 621 billion yen of bailout money they received following Japan’s banking crisis in the 1990s, which gives the Financial Services Agency additional oversight over the institutions.

The FSA is expected to urge the two banks to come up with new business strategies, the Nikkei said.

Shinsei will work on a plan to raise its capital ratios, while Aozora will seek growth through alliances with local banks, the paper said. Aozora is approaching Norito Ikeda, the man picked to head the post-merger bank, about joining its management, the paper added.

(Reporting by Jennifer Robin Raj in Bangalore, Kiyoshi Takenaka and David Dolan in Tokyo; Editing by Anne Pallivathuckal and Ron Popeski)