Japanese banks Shinsei and Aozora cancel merger plans

Japanese banks' Shinsei Bank and Aozora Bank have abruptly called-off a planned merger that would have created the country's sixth-biggest commercial bank, without disclosing any further details.

Both banks are controlled by private equity firms, with the government owning a significant stake in each through prefernce shares. While JC Flowers & Co. has a 32.5-per cent stake in Shinsei and the Japanese government another 23.9 per cent, Cerberus Capital Management owns 55 per cent stake in Aozora, with the government owning another 22 per cent.
 
Aozora Bank said in a statement the cancellation of the merger with Shinsei Bank was by mutual agreement. Aozora spokesman Tsutomu Jimbo said, "We have decided to shelve the merger talks. As talks progressed, opinions diverged."

Both the banks said they were ending the deal planned in July 2009, after taking into consideration business environment changes since its announcement.

"As the business environment in Japan has rapidly developed, it has become necessary for financial institutions to improve competitiveness by attaining sufficient scale and by strengthening their capital bases," the banks said in a statement

The news of the cancellation was made after Shinsei posted a net loss of ¥140billion ($1.5bn; £1bn) for the year.

Both the banks, which suffered in the global financial crisis, announced merger plan last year but with differnt motives; Shinsei required to shore up its capital while Aozora was facing a liquidity crunch. However, diffferences arose over several issues, such as the capitalisation, name and the the business focus of the post-merger entity - Shinsei wanted a retail focus, while Aozo9ra wanted a business alignment with regional banks.