Japan's Orix, Credit Saison in merger talks

By Emi Emoto and Taro Fuse

TOKYO (Reuters) - Orix Corp (8591.T), Japan's largest leasing company, and credit card firm Credit Saison (8253.T) are in merger talks, financial sources said on Tuesday, in a further sign of consolidation in the country's hard-pressed consumer lending sector.

Shares of Credit Saison, worth $4 billion at current market prices, surged 11.2 percent, while those of Orix, a company three times its size, rose 2.6 percent.

Combining the two would create a finance group with $106 billion in assets as Japan's financial sector battles tighter regulations in consumer lending and the global credit crunch, even as a slowing economy has hurt Orix's core lease business.

"We may not just be talking about these two companies. We could see a flurry of consolidation after this," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Orix has sounded out Mizuho Financial Group (8411.T) about selling its shares in Credit Saison to open the way to a deal, two sources close to the matter told Reuters. Mizuho is the company's top shareholder with a stake of 11.7 percent.

Both sources were briefed on the talks but are not authorized to speak on the record as the deal is not yet public.

The two companies issued statements saying they already worked together and have talked about deepening the relationship, but added that nothing had been decided on the reported merger.

Credit Saison president Hiroshi Rinno has said previously that he aimed to turn his company into a comprehensive non-bank firm like Orix, without hinting at any possible merger with Orix, a Credit Saison spokesman said.

Any deal will likely hinge on whether Mizuho agrees to sell its stake in Credit Saison, concerns analysts said had limited the rise in share prices for both firms.

"The focus is now whether Mizuho would let go of Credit Saison, as they have several operational ties including a joint venture to process credit card transactions," said Minoru Hattori, analyst at Okasan Securities.

"If Mizuho okays the plan, it would be a positive merger, combining the ideal set of retail and wholesale financing operations. An overlap would basically be limited to the real estate business, which accounts for little of their assets."

INDUSTRY WOES

The consumer finance industry in which Credit Saison operates has been crippled by regulations lowering maximum interest rates and legal rulings that have forced firms to repay previous charges deemed illegally high.

Those conditions have prompted General Electric Co (GE.N) to sell its Japanese consumer finance arm to Shinsei Bank Ltd (8303.T) for $5.4 billion and Citigroup (C.N) to withdraw from the market.

The Nikkei business daily said Orix and Credit Saison were working towards a basic agreement next month to create a non-bank financial group with assets of 11.5 trillion yen ($106 billion).