Orix, Japan's largest leasing company, and consumer credit firm Credit Saison are in merger talks, financial sources close to the matter said on Tuesday, seeking a deal to form a $106 billion finance group.
Orix has sounded out MizuhoFinancial, Credit Saison's top shareholder, about selling its stake to allow the merger to happen, the sources told Reuters.
The merger would come as Japan's financial sector suffers from the fallout of the subprime loan crisis and a slowing economy.
The consumer finance industry in which Credit Saison operates has also been hurt by tighter regulation lowering maximum interest rates, and legal rulings that have forced firms to repay previous charges now deemed illegally high.
Both companies issued statements saying nothing had been decided, after the Nikkei business daily reported they were in talks to create a non-bank financial group with assets of 11.5 trillion yen ($106 billion).
Citing sources close to the talks, the Nikkei said that setting up a holding company and placing the two companies under it was an option, but the most likely outcome would be a merger to be completed in the autumn of 2009.
The companies are working towards striking a basic agreement next month to create Japan's first major non-bank financial group, the newspaper said.
The Tokyo Stock Exchange suspended trade in the two companies' shares.
In New York, Orix depositary receipts fell 2.8 percent, outperforming a 5 percent fall by the stock in Tokyo on Monday and taking their losses to around 30 percent from their 2008 high struck early in June.
Credit Saison shares have also struggled, falling 8 percent in the past two trading days and down 35 percent from their peak for the year in early February.