Shinsei and Aozora, two lossmaking lenders backed by US private equity groups and the Japanese government, on Wednesday unveiled plans to merge their operations in October next year to create the sixth-largest bank in Japan with Y18,000bn ($187bn) in assets.

The deal is structured as a merger of equals with Shinsei, which is 32.5 per cent owned by JC Flowers, becoming the surviving bank. Aozora, which is 50.5 per cent owned by Cerberus, will be delisted and shareholders will receive one Shinsei share for each Aozora share.