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Antitrust concerns keep regional bank merger plan in limbo

Japan's Fukuoka Financial, Eighteenth Bank to extend timeline indefinitely

TOKYO -- Two regional banks in southwest Japan likely will push back their planned merger indefinitely, as they have failed to clear the concerns raised by the country's antitrust authorities.

Fukuoka Financial Group and Eighteenth Bank are now finalizing the details. They are expected to announce a merger delay as early as next week.

Third delay

The duo said in February 2016 that they plan to merge in April this year. In January, they were forced to push the target date back until October. They decided last month that an additional few months would be necessary to negotiate the deal with stakeholders.

The banks are abandoning a clear timetable because they now realize a long period of coordination with the Japan Fair Trade Commission would be necessary to get the green light for their merger.

Fukuoka Financial owns Shinwa Bank in Nagasaki Prefecture, where Eighteenth Bank is the top player. When combined, their share in the prefecture's loan market would total around 70% -- unprecedented for regional bank consolidations. Hence, the commission is concerned that the planned merger could hamper competition in interests and fees, leaving customers with fewer choices.

Before delving into the main screening process, the regulator had requested details about the banks' merger plans, but it has yet to hear from them. If the banks force the deal through, the commission would have to decide whether to issue an order to block it -- a measure never taken in post-war Japan for business reorganization efforts.

The pair maintains that third-party supervision would prevent inconveniences to customers.

Broader ramifications

Other regional banks across Japan may face similar hurdles. Amid the Bank of Japan's negative interest rate policy, many regional lenders are losing money in core operations. In light of the harsh business environment, Fukuoka Financial and Eighteenth Bank see it crucial for them to consolidate overlapping branches through a merger. The duo, as well as other regional banks, seek to raise efficiency via consolidation in order to continue supplying risk money to smaller localities in northeast Japan, Shikoku and elsewhere.

The merger between Fukuoka Financial and Eighteenth Bank was seen as a model case of local-economy revitalization. So all eyes are on how the banks deal with various antitrust concerns.

To allay those issues, the two banks may unload some loan claims to others, in order to lower their market share. But appeasing regulators will be a tall order. While the commission appears to consider sale of hundreds of billions of yen in loan claims as necessary, the banks see tens of billions of yen as the maximum they could sell with support from local customers.

The duo essentially has three options: come up with a proposal that clears the commission's demands, force the deal through and hope for a favorable judgment through the legal system, or abandon the merger entirely. 

If the deal goes through, the combined entity will be the No. 1 regional bank in Japan, with total assets of more than 20 trillion yen ($179 billion).

(Nikkei)

 

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