TOKYO (Reuters) –

Orix Corp (8591.T), Japan’s largest

leasing company, and consumer credit firm Credit Saison

(8253.T) 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 Mizuho Financial Group (8411.T),

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 (IX.N) 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.

($1=108.20 Yen)

(Writing by Aiko Hayashi; Editing by Chris Gallagher)