Japan reels under biggest bankruptcy since the war
By Juliet Hindell in Tokyo
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Hiroaki Okamoto, president of Japan Leasing Corporation, flanked by lawyers at a news briefing in Tokyo yesterday
JAPAN'S biggest postwar bankruptcy occurred yesterday, immediately after the country's politicians agreed to rescue the ailing banking sector.
The Japan Leasing Corporation went to the wall after opposition negotiators blocked the use of public funds to rescue its parent company, the Long Term Credit Bank (LTCB), because the bank might already be insolvent.
The corporation had debts of £10 billion after rash lending in the Eighties when Japan's economy was booming. LTCB's two other non-bank affiliates are expected to collapse soon.
If the legislation agreed yesterday goes through parliament, new executives will be put in charge at the bank. It could later be sold to Sumitomo Trust with whom it was meant to merge before the crisis started.
Talks lasted through the night into yesterday morning to hammer out details of the legislation. The ruling Liberal Democratic Party, which does not have a majority in the upper house of parliament, was forced to compromise by the opposition to have any hope of passing the Bills this session.
Keizo Obuchi, the Prime Minister, whose political future depends on the success of the bank deal, said that speed was of the essence. The Nikkei closed up 185.53 points at 13,999.37 in an indication that the terms of the deal had won approval on the markets.
But the agreement is a huge loss of face for Mr Obuchi who has seen his popularity fall to an all-time low. A poll published yesterday gave him only a 20 per cent approval rating.
The package will tackle the mountain of unrecoverable loans held by the country's banks, estimated to be at least £435 billion, and widely regarded as the biggest obstacle to recovery. The sticking point between the two sides had been whether to use public funds to prop up the banks.
The opposition refused and won the day. Instead, failing banks will be temporarily nationalised and the law allowing the use of public funds will be repealed.
The arrangements leave LTCB's affiliates out in the cold. Without funds from the bank, bankruptcy was forced on the corporation.
Its failure will have repercussions throughout the financial sector. It was involved with almost all financial institutions in Japan, especially the politically sensitive agricultural co-operatives. They play a crucial role in the corporation's core support of rice growing farmers who could see their local credit unions go bust.
telegraph.co.uk |
