Merrill Lynch is planning to buy a $2.9 billion stake in Resona Holdings, Japan's fourth-largest bank by revenue.

The deal marks the biggest investment by a foreign company in a Japanese bank, and is more than twice the size of rival Goldman Sachs' $1.3 billion stake in Sumitomo Mitsui Financial Group, which it acquired in 2003.

If converted today, Merrill's convertible preferred shares to 9% of Resona, which plans to use proceeds to pay down part of the $16.5 billion in loans it received in 2003 as part of a government bailout of the banking system following a slew of bad loans.

As Japan's banking system struggled to emerge from crisis, Merrill has actively courted the large but weak institutions. The most recent Merrill deal comes as foreign financial institutions increase their presence in Japan as its economy improves after more than a decade of slow or no growth.

Merrill Lynch & Co. said it will buy a $2.9 billion stake in Japan's fourth-largest bank by revenue, the latest deal to underscore the increasing attraction of Japan for Wall Street investment banks.

Merrill's investment in Osaka-based Resona Holdings Inc. marks the largest investment ever by a foreign company in a Japanese bank. Though Merrill is likely to pare its stake soon, the holding is more than twice the size of rival Goldman Sachs Group Inc.'s $1.3 billion stake in Sumitomo Mitsui Financial Group Inc., which was acquired in 2003.

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