Asahi joins Daiwa in regional superbank


The deal will create Japan's fifth-biggest bank, and Asahi and Daiwa invited other regional banks to join it

By Alex Frew McMillan CNN Hong Kong

OSAKA, Japan (CNN) -- Asahi Bank confirmed Friday that it would merge into Daiwa Bank, forming a "super-regional" bank serving both western and eastern Japan.

It will be Japan's fifth-biggest bank group, with more than 50 trillion yen ($430 billion) in assets.

The banks said they would finish the merger by 2005, saving them $580 million (68 billion yen) a year.

Asahi will become part of a parent company being set up by Daiwa with two local banks, Kinki Osaka Bank and Nara Bank.

Cost cutting efforts

They have not settled on a name or logo for the bank. But they will be determined "at the earliest time possible," the banks said in a release.

The consolidation will see the banks cut a total of 29 percent of their branches and 27 percent of its workforce.

Those cuts will be finished by the end of fiscal 2004, leaving it with 227 offices and 6,307 workers.

Asahi, which is focused around greater Tokyo, doesn't overlap much with Daiwa, which is based in Osaka and serves the Kansai region.

Kansai is Japan's second-largest population base, including the cities of Osaka, Kobe and Kyoto.

Similar missions for survival

The banks said they realized they had similar missions. Both Daiwa and Asahi have focused on being regional players.

They are concentrating on smaller customers - consumer banking, home loans and small-business lending.

They have withdrawn from international business deals and big business, where they faced fierce competition from Japan's Big Four bank groups.

Despite creating the fifth-biggest bank group, Asahi and Daiwa will be far behind UFJ Holdings, the smallest of the Big Four.

Daiwa and Asahi invited other banks that are interested in focusing on a future as regional players to join the bank group. They said they would look to expand it.

The deal has raised eyebrows because Asahi is merging into Daiwa, despite being twice the size. It may have been propelled by rumors it was about to miss its dividend payment, which threatened it with nationalization.

Asahi denied those rumors. But Japanese bank regulators are thought to be looking for one high-profile nationalization to prove they are serious about bank reform.

Asahi has struggled operationally after it ditched a plan to merge with Japan's Sanwa Bank and Tokai Bank last year. Those banks became part of UFJ Holdings Inc. in April. Daiwa was widely regarded as the weakest "city bank," or big bank. It announced the holding company with Nara and Kinki Osaka last month, creating

It also said it was trimming jobs and shutting unprofitable branches.

The banks said they hope their regional focus gives them a different tack that will set them apart from the Big Four and help them survive.

Japan's bad-loan problem is its biggest business challenge, many experts say.