Aozora Bank and Shinsei Bank have
confirmed merger talks are ongoing between the lenders which, if
concluded, will create the sixth-largest bank in Japan by assets.
Such a deal would give the loss-making Aozora access to Shinsei’s
retail deposits to ease its capital needs and could provide Shinsei
with a boost of Tier 1, or core capital.

Local media have speculated since April about
a tie-up between Aozora, majority-owned by US private equity giants
Cerberus and Shinsei, one-third owned by rival JC Flowers, but the
banks remained silent about a possible marriage until making brief
statements on 24 June saying they were in talks.

A Shinsei/Aozora combine would have assets of
around $185 billion, retail deposits of more than $70 billion and a
branch network of 57 units.

While both banks reported full-year losses at
group level, retail results were more encouraging. At Aozora,
full-year retail net income rose to $18 million from a small loss
the year previous, while Shinsei converted a $67 million loss into
a $22 million profit over the same period.

Sanjeev Gupta, head of the individual group at
Shinsei, told RBI that a reassessment of retail strategy
that took place at the beginning of fiscal year 2008 was behind the
division’s change in fortunes.

“It was imperative to completely revamp the
business, from both a revenue perspective and a cost perspective,”
he said (see Japan country survey, RBI 613).