Private equity-backed Japanese banks confirm talks

Shinsei Bank, in which JC Flowers owns a 32.6 percent stake, and Aozora, in which Cerberus Capital Management owns a majority stake, have confirmed they are in talks to merge, two months after media outlets reported the possibility.

“While the two banks are currently in discussions, the bank has not made any decisions that need to be disclosed,” Aozora said in a statement. Shinsei, too, acknowledged the talks but said it “has no comments at this time” and would make further announcements as appropriate.

A merger between the two banks would create Japan’s sixth largest bank. It could provide Shinsei with an increased Tier-I or core capital and give Aozora access to Shinsei’s retail deposits, Reuters reported.

In March, Shinsei disclosed plans to raise ¥50 billion ($524 million; €373 million) of capital through the issuance of Tier I preferred securities to enhance its capital base.

Shinsei and Aozora have been in talks for at least two months now and a merger between them was publicly endorsed by Kaoru Yosano, Japan’s finance and economics minister, in April. Japan’s government is a significant shareholder in the two banks, with stakes of 22 percent and 24 percent in Aozora and Shinsei respectively.

Cerberus originally acquired a 49 percent stake in Aozora Bank for ¥101 billion in 2003.

A consortium led by JC Flowers and Ripplewood Holdings acquired the Long-Term Credit Bank of Japan in a deal worth $1.2 billion in 2000 and renamed it Shinsei. Following restructuring programme, the investors sold their stakes in the bank in tranches and reduced their voting rights to 2.56 percent. Flowers invested in the bank for a second time in November 2007 and acquired a 32.6 percent stake for $1.8 billion.

Aozora shares rose from ¥139 at close on Wednesday to ¥154 at close on Thursday following the bank's announcement. Shinsei shares were up ¥145 to ¥161 the same day. At time of press, their shares were trading at ¥147 and ¥157 respectively.