Aozora Bank and Shinsei Bank have terminated their merger agreement, by mutual agreement, pursuant to the alliance agreement executed between the two Japanese banks on July 1, 2009.

Differences over strategy and capitalization are said to be the reasons behind the collapse. Reportedly, Shinsei and Aozora both became victims of the global financial turmoil and last year announced a planned merger to form a commercial bank in Japan.

However, negotiations hit a gridlock, with Shinsei intending to expand its retail operations and Aozora more interested on working with domestic banks. Reports also said the two parties were unable to agree on a name for the new entity.

Aozora Bank said that it would look to utilize its strong capital base appropriately to generate stable profits over the long term. Aozora Bank will also consider entering into a new business alliance with Shinsei Bank with the aim of continuing to strengthen the two banks’ cooperative relationship.

Tsutomu Jimbo, spokesman of Aozora, said: “We decided to shelve the merger talks. As talks progressed opinions diverged. Instead of spending time on bringing together merger conditions and management strategies, we decided that expanding each of our strengths separately was the top priority.”

Cerberus Capital Management owns 55% of Aozora, while JC Flowers & Co holds 32.5% of Shinsei. The government of Japan, which holds 23.9% share of Shinsei and about 22% of Aozora, has expressed its concern over the development.