(by Sh. Nakata)

Sumitomo Mitsui Financial Group Inc. entered a $29 billion hostile bid to get UFJ Holdings Inc.

Investors regard this step as a test to check its capacity to persuade shareholders it can cut UFJ’s bad loans. It could be rather difficult as the bank has 4.62 trillion yen of non-performing loans facing criminal charges for hiding bad loans from the regulator.

Recently Sumitomo offered 700 billion yen ($6.4 billion) in funding to UFJ against its merger agreement with Mitsubishi Tokyo Financial Group Inc., inclined to form world’s largest bank by assets.

SMFG President Yoshifumi Nishikawa cut bad loans at 2.5 trillion yen and decreased costs more than MTFG, its closest rival, in the most recent fiscal year.

MTFG cut 1.2 trillion yen of bad loans in the year ended March, having the lowest bad-debt ratio among the four major banks of Japan. Its shares dropped 46.000 yen (4.4%) to 994.000 yen on the Tokyo Stock Exchange.

UFJ shares lifted 3.1% to 526.000 yen on the Tokyo Stock Exchange, with total value $24.4 billion. SMFG shares decreased 0.8% to 624,000 cutting the value of its takeover bid by a similar percentage.

Mitsubishi Tokyo would definitely have to offer about 0.6 of its shares for each UFJ share to match Sumitomo Mitsui’s offer. People say though, it can be worth offering.