Japanese government endorses private equity-backed bank merger

Japan’s finance and economics minister has publicly stated his support for a proposed merger between the Aozora and Shinsei banks, in which the government holds significant stakes.

A merger between two troubled private equity-backed banks has been publicly endorsed by the Japanese government.

The Shinsei Bank – in which US private equity firm JC Flowers owns a stake of around one-third – and listed Aozora Bank – backed by Cerberus Capital Management – are reviewing merger plans, according to the Financial Times.

“I want the parties to bring the talks to a successful end,” Kaoru Yosano, Japan’s finance and economics minister, said at press conference in Tokyo on Monday.

The Japanese government is a major shareholder in the banks, holding around a 22 percent stake in Aozora and a 24 percent stake in Shinsei.

Both banks have faced difficulties recently. In December Aozora revealed it had around $137 million in exposure to Bernard L. Madoff Investment Securities, which has allegedly defrauded its investors in a massive Ponzi scheme; while Shinsei, which has been bailed out by Flowers twice since the private equity firm acquired it, recently issued securities to raise ¥50 billion ($509 million; €400 million), to “strengthen its Tier I capital”.

“We have not made any decisions which need to be disclosed,” Aozora said in response to the announcement by Yosano.

Cerberus and JC Flowers declined to comment.