Mitsubishi Tokyo Financial Group and UFJ Holdings, due to merge on October 1, said on Friday they will delay combining their core commercial banks until January to run extra tests on their computer systems.
Executives at Japan's second- and fourth-biggest financial firms decided on the delay after regulators warned there was a risk that the systems could not be safely integrated in time, according to company sources.
Authorities hope to avoid a repeat of the botched launch of Mizuho Financial Group's retail bank in 2002, when automated teller services failed and 2.5 million transactions went unprocessed at the newly formed lender, Japan's biggest.
"After considering the scale of the merger and the impact it will have on society, we decided we had an unusually heavy responsibility," Mitsubishi Tokyo president Nobuo Kuroyanagi said at a news conference.
The commercial bank will serve 40 million retail customers and act as the public face of the massive Mitsubishi-UFJ group, which will be the world's biggest financial firm with assets topping $1.7 trillion.
Mitsubishi Tokyo and UFJ did not address regulators' concerns directly or acknowledge any specific systems-integration problems. "We're going to go beyond what is normally necessary in our testing," Kuroyanagi said.
The groups said their holding companies, brokerages and trust units would combine on October 1 as scheduled.
Executives formally decided on Friday to delay merging the banks, Bank of Tokyo-Mitsubishi and UFJ Bank, though the move had been in the works for several weeks following the warnings from the Financial Services Agency (FSA).
In unpublished reports, the FSA told bank planners they had not adequately proven in simulations that intermediary networks that will link the two lenders' platforms would work smoothly, the company sources said.
Bank of Tokyo-Mitsubishi uses an IBM account-management platform, while UFJ uses one from Hitachi Ltd. The merged bank plans to run both platforms in tandem until December 2007, when it will shift to the IBM system.
Delaying the bank merger until January could push back the 2007 target by several months, Kuroyanagi said, adding a final decision would be made after more work had been completed.
International credit-rating agency Fitch Ratings said it was "concerned that realisation of synergies from the merger would also be delayed," referring to 200-250 billion yen ($1.82-2.28 billion) in annual savings the groups expect to realise through the union.
Kuroyanagi acknowledged the delay would add to merger costs but said it would not affect the new group's earnings forecasts, which call for 540 billion yen in net profit in the business year to next March.
Full operations at the new commercial bank, to be called The Bank of Tokyo-Mitsubishi UFJ Ltd, will start on January 4 after the New Year holiday.
Separately on Friday, Mizuho said it expected its two core bank units to generate a combined 572.4 billion yen in net profit in the 2008/9 business year.
The optimistic forecast reflects Mizuho's sharp turnaround after it cut a once-towering pile of soured loans. Mizuho is required to submit long-term profit plans to regulators because of a taxpayer-funded bailout in the late 1990s.
The bank reported net profit of 627 billion yen in 2004/05, helped in part by a massive one-time tax refund.
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