On Not(Free Trade, Less Government, Total Market force) front
Japanese are leading in a different way instead of sanctions regime.
Japan to Nationalize Big Regional Bank
biz.yahoo.com
Saturday November 29, 11:12 am ET
By Chikako Mogi and Chisa Fujioka
TOKYO (Reuters) - In its first major outright bank nationalization in five years, the Japanese government said on Saturday it would take control of big regional lender Ashikaga Bank after inspections showed it was insolvent.
It will be the second time in six months that public funds have been used to shore up Japan's banking sector, which is still struggling with huge bad loans and weak balance sheets left over from the bursting of Japan's asset bubble more than a decade ago.
Speaking after a 20-minute crisis meeting, Prime Minister Junichiro Koizumi said he expected markets to react calmly.
"We are temporarily nationalizing it but we will take firm steps to avoid any confusion," he told reporters. "We want to keep the impact to a minimum. I believe the markets will react calmly, given that we are protecting all deposits."
Officials gave no figures for the cost, but financial sources said it could be more than one trillion yen ($9 billion).
Ashikaga, believed to be the only Japanese bank that has a correspondent banking relationship with North Korea, had told the regulatory Financial Services Agency that its results for the half year to September 30 showed it had negative net worth.
Just six months ago, the government injected 1.96 trillion yen ($18 billion) into Resona Bank, Japan's fifth-largest lender.
In Resona's case, shareholders were protected and the bail-out marked the start of a big stock market rally.
With Ashikaga, however, temporary state control will wipe out existing equity, although depositors will be protected.
"The method of the public funds injection, which forces shareholders to take responsibility, is surprising given past public fund injections for Ashikaga and next year's Upper House election," said Eiji Dohke, chief strategist at UBS Securities.
"Many in the markets had expected a Resona-style rescue, which would have been more generous to existing shareholders, and the market's reaction will be to sell stocks and buy bonds."
Tsuyoshi Nomaguchi, strategist at Daiwa Securities, said the move would send a tremor through the stock market. "The market had seen a 50-50 chance of a Resona-type bailout," he said.
Ashikaga had been in the spotlight as banking authorities shift their focus to regional lenders, which have lagged bigger banks in disposing of bad loans and repairing their capital.
The bank, the core of Ashikaga Financial Group, dominates lending and deposit-taking in Tochigi prefecture, a mixed industrial and agricultural area north of Tokyo.
BIG QUESTION ANSWERED
Ashikaga becomes the first big Japanese bank to be nationalized since a financial crisis in 1997-98 when the government took control of Long-Term Credit Bank and Nippon Credit -- both of which were later sold to U.S. investment funds.
Analysts had said the big question was not whether the government would take action but what method it would use -- the main choices being injecting funds into the bank to beef up its capital or, more drastically, putting it under state control.
The public fund injection is the third for Ashikaga. The bank received 135 billion yen in taxpayer funds in 1998-99.
The Bank of Japan said it would make special loans to Ashikaga to ensure there was no liquidity shortage, and BOJ Governor Toshihiko Fukui said he saw no major economic damage or impact on other regional banks from Ashikaga's nationalization.
"As long as it is carried out smoothly, I do not see major damage to the regional economy, and thus the Japanese economy as a whole," he told a news conference.
Financial Services Minister Heizo Takenaka, who said all other banks had met capital adequacy requirements in the latest reporting period, said Ashikaga's management would be replaced.
Taking control of Ashikaga -- just an eighth the size of Resona but larger than Mellon Financial Corp of the United States -- indicates the government is at last taking a step toward addressing the problems of Japan's regional banks.
Authorities are under increasing pressure to return banks to health before a planned end to blanket guarantees on deposits scheduled for March 2005, after which deposits are expected to shift from weak banks to healthier ones.
Many of Japan's 118 regional banks are in worse shape than bigger lenders as they have fallen behind in cleaning up bad loans and strengthening their capital bases.
As of March, Japan's top seven banks held a total of about 20 trillion yen ($183 billion) in bad loans, compared with about 15 trillion for the regionals, out of a total 44.5 trillion of bad loans in the entire banking system.
Because of the deteriorating situation, the FSA aims to introduce rules to make it easier to inject funds into banks.
At the end of September, Ashikaga had assets of 4.96 trillion yen ($45.46 billion), down from 5.27 trillion yen at end-March.
It had negative capital of 108.1 billion yen, worsening from 23.3 billion yen at end-March. Its liabilities exceeded assets by 102.3 billion yen at the end of September. Shares in Ashikaga closed on Friday at a record low 81 yen, down 23.58 percent.
(Additional reporting by Shinichi Kishima) |
