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Japanese bank deal sunk
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June 15, 2000: 4:29 a.m. ET
Asahi drops out of Sanwa-Tokai tie as sector consolidation gathers pace
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LONDON (CNNfn) - Japan's Asahi Bank on Thursday pulled out of a three-way plan to create the world's third-largest bank, leaving its would-be partners Sanwa Bank and Tokai Bank to go ahead with a less ambitious merger.
Asahi, a medium-sized regional bank, agreed in March to combine with larger rivals Sanwa Bank and Tokai Bank, one of four mega-mergers set to transform the troubled Japanese banking sector. Analysts said its walkout wasn't likely to put a halt to the consolidation process in the industry.
Asahi said the decision reflected disagreements over how the three banks should combine their operations. Media reports said it was unhappy with a proposal to replace the original plan for a gradual combination of the businesses under a joint holding company - the structure adopted in other deals in the sector -- with an all-out merger.
Analysts had cautioned that the three-way alliance, announced after just a month of talks, would be difficult, noting overlaps in their branches and businesses.
"The news was negative for the banking sector, fuelling doubts about the feasibility of other planned mega-mergers," Nozomu Kunishige at Lehman Brothers told Reuters. "But I don't think other groups will backpedal on their merger plans. The market would punish such a move."
 However, Asahi's decision prompted a broad sell-off in Japanese bank stocks Thursday. The financial-services sub-index of the blue-chip Nikkei 225 fell almost 3 percent.
Asahi shares slumped 6.6 percent and Sanwa Bank lost 6.2 percent, but Tokai's shares rose 2.4 percent amid expectations it would play a larger role in a combination with Sanwa.
Other deals 'unaffected'
The outlook for the Japanese banking sector has been transformed over the past year, since three of its largest players, Dai-Ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan, announced plans to merge. Renamed as the Mizuho Financial Group, with assets of around ¥135 trillion ($1.3 trillion), it would be the world's largest financial institution. DKB and IBJ shares both fell 6 percent Thursday, with Fuji off 5 percent.
A legacy of bad loans from the asset price "bubble" of the late 1980s brought Japan's bank sector almost to its knees, leading to the closure of many smaller banks while the government took over some and overseas institutions bought others. Meanwhile, overseas banks such as Merrill Lynch (ML: Research, Estimates) and Goldman Sachs (GS: Research, Estimates) have expanded rapidly in the region as Japan deregulated its savings market, the world's largest.
The Mizuho merger plan was followed last October by Sumitomo Bank's agreement to merge with Sakura Bank to create the world's second-largest bank by assets. In April Bank of Tokyo-Mitsubishi said it would merge with Mitsubishi Trust & Banking to form the global number five.
Asahi said it might seek ties with other regional banks or even non-financial firms.
Lehman's Kunishige said Tokyo-based Asahi could broaden the geographical reach of its retail operations by seeking a deal with Daiwa Bank, based in Osaka, or by joining with Bank of Yokohama or Chiba Bank to strengthen its retail base just outside the Tokyo area. 
-- from staff and wire reports
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