Sumitomo Trust & Banking Co. and UFJ Trust Bank said Friday they have agreed to integrate operations to create the biggest trust bank in Japan, eclipsing Mitsubishi Trust & Banking Corp.

The deal calls for the UFJ financial group to sell UFJ Trust to a new trust bank to be established by Sumitomo Trust. UFJ Holdings Inc., which leads the group, will buy a stake in the new bank.

The transfer of trust businesses from UFJ Trust will be completed by the end of next March, but will exclude retail operations, which will be transferred by the end of March 2006.

UFJ Trust's loans to corporate borrowers will be taken over by UFJ Bank.

The deal also envisages that the two trust banks will establish a holding company for the integration of management.

The new bank will have entrusted funds and deposits totaling 52 trillion yen.

The deal reflects Sumitomo Trust's desire to expand its business and the UFJ financial group's plan to improve its financial position with the proceeds from the UFJ Trust sale.

The UFJ group is expected to report a net loss of 300 billion yen to 400 billion yen in the business year to March 31 as a result of additional loan-loss provisions.

The 300 billion yen in proceeds are expected to raise the UFJ group's capital-adequacy ratio to 9 percent, just slightly above the minimum-required 8 percent for internationally active banks.

This latest deal marks the biggest merger in Japan's trust banking industry after the 2000 marriage of Mitsui Trust & Banking Co. and Chuo Trust & Banking Co.