Nomura 'holds merger talks with Daiwa'

RICHARD LLOYD PARRY

Tokyo

A likely merger between Sumitomo Bank and the scandal-stricken Daiwa Bank may also involve the leading Japanese brokerage, Nomura Securities, forming the biggest financial conglomerate in the world.

Japanese newspapers yesterday quoted unnamed sources close to Nomura, who claimed that the brokerage had already held talks with Daiwa aimed at eventually setting up a joint holding company. On Friday, Daiwa and Sumitomo admitted that a merger was possible, after the US regulatory authorities ordered Daiwa to close all its US operations following the alleged cover-up of $1.1bn (pounds 690m) bond trading losses.

The banks insist that detailed talks have not yet begun, but reports suggest that a union is likely, possibly as early as autumn 1996. The proposed bank would be easily the world's biggest, with total capital of 62,000bn (pounds 380bn), compared with a combined 52,700bn for the merger of Mitsubishi Bank and the Bank of Tokyo, which will formally take place in April.

As the only one of the Japanese commercial banks licensed to carry out trust business, Daiwa is an attractive prospect for a potential suitor. The new institution would have a wider line of business than any other Japanese institution, and its formation would be likely to have a profound effect on the banking sector, with competitors forced to revise corporate strategies and consider their own mergers to survive.

The Finance Ministry and Bank of Japan are said to approve of the merger, although various obstacles remain, above all the 24 criminal charges brought against Daiwa by US prosecutors on Friday. Daiwa has accepted the order to wind up its US operations by the end of February, but it has denied the allegations of a cover-up or systematic illegal trading. Last week it rejected a plea-bargaining offer from prosecutors and, if each of the 24 charges is individually contested, the prospect of an early merger would recede.