Japan's Supreme Court on Monday cleared the way for UFJ Holdings and Mitsubishi Tokyo Financial Group to merge by rejecting a bid to halt the deal by Sumitomo Trust and Banking, a court spokeswoman said.
The nation's top court upheld a Tokyo High Court decision earlier this month, paving the way for the two of Japan's big four banking groups to form the world's largest bank next year.
Mitsubishi Tokyo, Japan's second-largest bank, and UFJ, the fourth largest, announced in mid-July plans to merge all of their operations but UFJ had previously agreed in principle to combine its trust bank unit with Sumitomo Trust.
Sumitomo Trust, which went to court in an effort to make UFJ stick to that deal, said Monday's ruling acknowledged its exclusive negotiating rights to bid for UFJ's trust arm.
"We regret that the need for the temporary injunction was denied, but the Tokyo High Court's extermination of our exclusive negotiating rights has been effectively overturned by this decision," Sumitomo Trust President Atsushi Takahashi said in a statement.
"We will consider our reaction from now on."
Reports said Sumitomo was considering filing a civil suit.
The ruling, which rejected Sumitomo Trust's appeal, clears the last major hurdle to UFJ and Mitsubishi Tokyo's agreement to merge by October 1, 2005, forming a bank with assets of about 188.8 trillion yen (1.7 trillion dollars).
"For Mitsubishi Tokyo Financial Group, a key obstacle has been removed and it will make it easier for it to accelerate the consolidation process," BNP Paribas analyst Nozomu Kunishige said.
Last week Sumitomo Mitsui Financial Group, another suitor of UFJ, offered to merge with UFJ as equal partners.
Sumitomo Mitsui, the third-largest bank in Japan, said it would offer one of its own shares for every UFJ share, saying a merger between the two would be "the best option for shareholders, clients and employees of both groups."
UFJ replied it would consider the offer although it had "not changed the basic stance to integrate management with Mitsubishi Tokyo."
UFJ is aggressively seeking to unload hard-to-recover loans owed by large corporate debtors ahead of the planned merger.
As part of the merger pact, Mitsubishi Tokyo, the most profitable bank among the big four, has promised to provide up to 700 billion yen to boost UFJ's capital by the end of September.
Mitsubishi Tokyo's strength is its institutional banking, especially in Tokyo and its hinterland, while UFJ is strong in retail banking nation-wide and would expand Mitsubishi Tokyo's customer base.
News of the Supreme Court decision came after the local stock market closed narrowly mixed for the day.
On the Tokyo Stock Exchange, UFJ rose 6,000 yen or 1.12 percent to 541,000 yen while Mitsubishi Tokyo gained 5,000 yen or 0.50 percent to 997,000 yen.
Sumitomo Trust, which is not part of the Sumitomo Mitsui group, rose one yen or 0.15 percent to 664 yen.
Sumitomo Mitsui Financial Group shares rose 9,000 yen or 1.37 percent to 663,000 yen.
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