Aozora Says Fixing Merger Disputes Trumps Deadline (Update2)
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By Finbarr Flynn and Takako Taniguchi
Jan. 18 (Bloomberg) -- Aozora Bank Ltd. Chief Executive Officer Brian Prince said “areas of disagreement” have arisen in merger talks with Shinsei Bank Ltd. and getting the right deal trumps an October deadline for completing the transaction.
“There are a number of issues we need to work through,” he said in an interview at the bank’s Tokyo headquarters on Jan. 15. “It is an important opportunity, and six months doesn’t make a difference. We’ve got to make it right.”
Prince, 45, agreed to merge with Shinsei in July after the banks posted a combined loss of $4.2 billion last fiscal year on soured investments in overseas bonds, hedge funds, and U.S. mortgage assets. Combining Aozora, controlled by Cerberus Capital Management LP, and Shinsei will create Japan’s sixth- largest listed lender with more than $190 billion in assets.
Aozora fell 5.5 percent in Tokyo trading, the biggest decline since Dec. 30, and Shinsei slipped 4.7 percent. The two companies were the largest decliners on the Topix Banks Index, which fell 1.4 percent.
Aozora, which had less than half the assets of Shinsei at the end of September, has risen 30 percent in the past year, making it the biggest gainer in the index of 84 publicly traded Japanese banks. The difference between the two banks’ share prices has narrowed to 2 yen from a high of 24 yen in August, according to Bloomberg data, indicating investors expect the deal to be completed.
1-to-1 Ratio
Each bank’s shareholders will own 50 percent of the combined lender after agreeing to a 1-for-1 common equity exchange ratio.
“Neither of them are winners in the game so they need help and are getting together, cutting costs and scaling down,” said Yuichi Chiguchi, who helps manage about 250 billion yen at Diam Co. in Tokyo.
Norito Ikeda, a former president of Japanese regional bank Ashikaga Bank Ltd., will become chief executive officer once the two banks merge.
“It is our intention to make the merger happen because we signed the agreement,” Prince said. “If it doesn’t happen we’ll deal with it.”
Aiful Loans
Prince, the fourth CEO to lead Aozora since 2007, was previously an executive with Shinsei and Lehman Brothers Holdings Inc. in Tokyo. He said no decision has been made on what role he may play after the merger.
At Shinsei, Prince led a drive to cut bad loans after the bank became the first Japanese lender to be acquired by foreign investors, including Ripplewood Holdings Inc., in 2000.
Aozora is the second-largest lender to Aiful Corp., the Japanese consumer lender that staved off bankruptcy last month after 65 creditors agreed to a delay in loan repayments. The bank had 37.9 billion yen in loans to Aiful, and 17.4 billion yen in loans to its Life Co. credit card unit, according to a financial presentation by Aozora in November.
Aozora is “overhedged” on the loans to Aiful, holding credit default swaps with a notional value in excess of about 37.9 billion yen, according to Chief Financial Officer Masaki Tanabe.
Aiful’s agreement with lenders to postpone repayments triggered a settlement auction of credit-default swaps. Aozora wants to collect “as much as possible without creating too much friction” on the derivatives, Prince said.
Aozora posted net income of 6.5 billion yen in the first half ended Sept. 30, compared with a loss of 28 billion yen a year earlier. Prince said he is sticking to the bank’s full-year profit forecast of 5 billion yen as the lender wants the opportunity to make sure its balance sheet is “clean.”
To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net
Last Updated: January 18, 2010 01:43 EST
