A Winning Team Of Japanese Banks

One bank is the financial cornerstone of the sprawling Mitsubishi keiretsu, boasts the strongest balance sheet of Japan's four mega-banking groups, and earned a record $5.1 billion in the fiscal year ended in March. The other is under scrutiny for understating nonperforming loans and lost $3.6 billion in the same period. So why would mighty Mitsubishi Tokyo Financial Group Inc. (MTFG) even consider cohabiting with the likes of UFJ Holdings Inc., a banking group with $36 billion in dud loans?

Turns out MTFG President and CEO Nobuo Kuroyanagi and his colleagues think there are plenty of good reasons, and on June 14 Kuroyanagi told reporters in Tokyo that merger talks were under way. The new bank would have $1.7 trillion in assets, eclipsing Citigroup (C ) as the world's No. 1 in assets, and would boast a market capitalization of $80 billion. Analyst Ned Akov of ING Financial Markets LLC says this number could jump to more than $100 billion in a year or so, thanks to cost savings. "It would combine MTFG's solid balance sheet with UFJ's strength in the consumer and small- and medium-company loan segments," he says. The two banks are hoping to merge by December.