Report: Shinsei and Aozora near merger

Japan's Shinsei and Aozora banks, in which JC Flowers and Cerberus Capital Management hold major stakes respectively, are reported to be nearing a union.

Japan’s Shinsei and Aozora banks are closing in on a merger, according to a Reuters report. A merger between JC Flowers-backed Shinsei and Cerberus Capital Management-backed Aozora would create Japan’s sixth largest bank.

The two troubled banks have been in talks for a while now and a merger between them has been publicly endorsed by the Japanese government. “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 in April.

JC Flowers owns a 32.6 percent stake in Shinsei Bank while Cerberus owns a majority stake in Aozora. The Japanese government is a major shareholder in the two banks as well, holding a stake of about 22 percent in Aozora and 24 percent in Shinsei.

The two banks will study each other’s assets and will work out a merger ratio, two sources close to the matter told Reuters. According to the report, while JC Flowers is actively working to merge the banks, Cerberus is engaged in working out more favourable terms for the deal.

Cerberus originally acquired a 49 percent stake in Aozora Bank for ¥101 billion ($1 billion; €780 million) 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 a restructuring of the bank’s operations, they divested their interest in the bank in tranches and reduced their voting rights to 2.56 percent. Flowers came to the rescue of the bank for a second time in November 2007 and acquired a 32.6 percent stake for $1.8 billion.

This March, Shinsei disclosed plans to raise ¥50 billion ($509 million) of capital through the issuance of Tier I preferred securities to enhance its capital base.

Shinsei declined to comment. Aozora could not be reached.