Shinsei Said to Mull Canceling Merger, Selling Shares (Update3)
March 11, 2010, 3:01 AM EST(Adds closing stock prices in fifth paragraph.)
By Finbarr Flynn and Takako Taniguchi
March 11 (Bloomberg) -- Shinsei Bank Ltd., the Japanese lender backed by U.S. investor Christopher Flowers, may raise 75 billion yen ($830 million) selling shares instead of merging with Aozora Bank Ltd., said a person with direct knowledge of the matter.
The Tokyo-based bank may sell shares as early as July, said the person, who is familiar with Shinsei’s capital plans. He declined to be identified before a public announcement.
Shinsei agreed in July last year to merge with Aozora, controlled by New York-based Cerberus Capital Management LP, after the companies posted a combined annual loss of $4.3 billion. The transaction would have created Japan’s sixth- largest listed lender with assets of $188 billion and a combined market value of $4.5 billion at current prices.
Reports the deal is collapsing will continue to widen the spread between the banks’ share prices, with Aozora set to outperform, said Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc. “Shinsei’s balance sheet is much weaker than Aozora’s,” he said in an interview today.
Shinsei fell 3.9 percent to 100 yen at the close of trading in Tokyo, making it the worst performer in the Topix Banks Index of 84 lenders. Aozora, the second-best on the gauge today, rose 3.3 percent to 124 yen.
Capital Disparity
Aozora and Shinsei’s share price correlation reached a high of 89 percent on Dec. 18 and slipped to 80 percent today, a year-to-date low, according to Bloomberg data. The price spread between the two stocks has widened since the start of the year, as reports mounted that the planned merger is in trouble.
Raymond Spencer, a spokesman for Shinsei, declined to comment on any capital raising plans by the bank and said merger talks are continuing. Aozora spokesman Richard Roylance said merger talks are continuing.
The Financial Times reported earlier today that Shinsei is preparing a share sale and may cancel the merger.
The bank had a Tier 1 capital ratio, a key indicator of a bank’s ability to absorb losses, of 7.8 percent at the end of Dec., compared with 6 percent at the end of March. Aozora had a Tier 1 ratio of 14.4 percent at the end of the same period.
Shinsei may report a loss of 179.1 billion yen for the 12 months ending March 31, on charges of as much as 200 billion yen at its real estate and consumer finance businesses, Shinichi Ina, a Tokyo-based analyst at Credit Suisse Group AG said in a report dated Feb. 8.
Chief Executive Officer Masamoto Yashiro, who returned to lead Shinsei in November 2008, told investors on Feb. 4 he aims to “clean up” unprofitable investments on its books by March.
Aozora Chief Executive Officer Brian Prince said in January his Tokyo-based bank would expand its own business if the deal failed, and that getting the right deal trumped an October deadline for completion of the merger.
--With assistance from Tomoko Yamazaki in Tokyo. Editors: Brett Miller, James Gunsalus
To contact the reporter on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
