Talks on for biggest banking group

A merger would also create a financial behemoth, with assets of $1.74 trillion, displacing US financial conglomerate Citigroup, with $1.32 trillion, from the top global ranking. UFJ said it aimed to reach an agreement with MTFG by the end of the week. MTFG said that it views the proposal favourably.

‘‘It will be positive for both parties and we will have turned a big corner towards growth,’’ said Masaaki Higashida, DGM of investment information at Nomura Securities.

Investors welcomed the news, driving the Tokyo stock market’s banking sector index up 1.38 per cent despite a 2.17 per cent drop in the benchmark Nikkei average.

A takeover will have to overcome major obstacles, however. Soon after the announcement, Sumitomo Trust & Banking, which had earlier agreed to buy UFJ’s trust bank unit, threatened legal action against UFJ, which was backing out of the sale. Credit rating agency Standard & Poor’s too said MTFG’s rating could be hurt as a result of a deal.