Two Japanese banks decide to join forces

Agence France-Presse

The two banks, which together lost about $4 billion in the year to March because of exposure to the U.S. financial meltdown, admitted to past mistakes and vowed a fresh start with a tie-up. Shinsei's president and chief executive Masamoto Yashiro, who was brought back to the post last year after American CEO Thierry Porte stepped down, said his bank lost its way because of "reckless investment overseas."

"The bank made high-risk investment, thinking only of profits and not risk," he said. "We will never repeat this." Shinsei and Aozora were both bailed out with public money during Japan's 1990s banking crisis and later sold to private U.S. investors.

They are still struggling to find a niche in the face of a weak economy and tough competition with larger rivals and regional lenders.

Yashiro said the combined bank "will aim to become a unique company that is neither a mega bank nor a regional financial institution."

The two lenders have agreed to a merger of equals that is expected to take effect by October 2010. Norito Ikeda, a former banking executive chosen to head the combined group, compared it to the Kanrin-maru, Japan's first ship to cross the Pacific Ocean in the mid-19th century and come back again.

"I was appointed as the captain who will bring back the Kanrin-maru - which has gone to the United States - back to Japan."

Ikeda, now an advisor to management consultants A.T. Kearney K.K., oversaw the revival of regional lender Ashikaga Bank.

Aozora chief executive Brian Prince said the two lenders would refocus the bank on its domestic lending businesses after disastrous overseas forays by the two companies. Shinsei, which is about one-third owned by U.S. buyout firm JC Flowers & Co, lost about $1.5 billion in the year to March, burned by investments in subprime mortgage backed securities and Lehman Brothers.

Last year it said it would sell its To yo headquarters for more than $1 billion. Aozora, roughly 50 percent owned by US investment fund Cerberus, went $2.6 billion into the red last year because of exposure to Lehman, auto finance giant GMAC and the Madoff investment fund. The two lenders both remain partly owned by the Japanese government.

Together they will have total assets of about 18 trillion yen. But analysts say there is limited scope for cost cuts through branch closures. Shinsei has just 35 outlets, mostly in Tokyo, while Aozora has 20.