Merging Japanese Banks Face Probe

One of two Japanese banks planning a major merger admitted Wednesday that it urged clients to buy stock in the bank in June before the negotiations had been completed.

The disclosure by Taiyo Kobe Bank has prompted a probe by the Tokyo Stock Exchange, although officials said they did not suspect insider trading was involved in plans to create the world’s second-largest bank, despite large share purchases made by a securities firm affiliated with the bank.

“It was intended to increase the number of stable shareholders of the bank’s stock,” said Fukio Yamamoto, spokesman of Taiyo Kobe Bank, which announced Tuesday that it would merge with Mitsui Bank next April. “It had no connection with the merger talks” going on then, Yamamoto said.

Taiyo Kobe has been seen as the main beneficiary of the merger in terms of its stock price, which is well below its merging partner. Taiyo Kobe stock had been steady at about $9.80 a share until late June, then began rising. It closed at $11.40 Monday, the day before the merger was announced.

Trading in both banks’ stock was suspended Tuesday to give investors time to digest details of the merger. On Wednesday, Taiyo Kobe stock closed at $13.50 after the maximum one-day gain of $2.10 allowed under exchange rules.

Officials of the Tokyo Stock Exchange said they would conduct a “routine-type” probe, not based on any suspicion that insider trading or illegality was involved.

Hitoshi Shimakura, head of the Transaction Inspection division of the world’s largest exchange, said his office would look into recent price fluctuations of both stocks.

“The real key is when the actual decision on the merger was made,” he said. “As far as insider trading laws are concerned, anything that occurred before the final decision to merge has to be handled separately.”

Kenichi Suematsu, president of Mitsui Bank, said Tuesday that the merger plan was formally approved by the boards of both banks Monday. He said negotiations for the merger began in March.