REFILE-UPDATE 2-Shinsei, Aozora to announce merger Wed -sources

(Refiles to add Reuters instrument codes)

* Merger likely to be completed by autumn 2010 -sources

* Former Ashikaga Bank head to lead merged bank -Nikkei

* Analyst: Combined bank needs better strategy

* Aozora's shares up 4.2 pct, Shinsei climbs 1.3 pct (Adds analyst comment, background)

By Taro Fuse and David Dolan

TOKYO, June 30 (Reuters) - Japan's Shinsei Bank and Aozora Bank, two loss-making lenders backed by U.S. investors, are likely to announce plans on Wednesday to merge by next year, two sources familiar with the matter said.

The deal, which will create Japan's sixth-largest bank by assets, will likely be completed by the autumn of 2010, said the sources, who declined to be identified because the information is not yet public.

The merger ratio is likely to be set at one-to-one, the Nikkei newspaper said, without saying where it got the information. That would give Shinsei (8303.T) 55.5 percent of the new entity and Aozora (8304.T) 44.5 percent, according to Reuters calculations.

"Shinsei has a retail franchise and deposit network that Aozora lacks and Aozora has a relatively stronger capital base," said Kristine Li, Japan banking analyst at KBC Securities.

"But they need to come up with a better strategy to survive and be profitable in this very competitive market."

Norito Ikeda, a former president of Japanese regional lender Ashikaga Bank, will take the helm of the merged entity, the Nikkei said.

The banks last week acknowledged for the first time that they were in merger talks. Domestic media had previously reported that disagreements between the banks' major shareholders had sidelined the discussions.

Aozora is majority owned by Cerberus Capital Management CBS.UL, while Shinsei is about one-third owned by buyout firm JC Flowers and Co.

Representatives of Shinsei and Aozora declined to comment.

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