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Technology Stocks : Softbank Group Corp -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (5396)	7/27/2000 9:53:50 AM
From: manohar kanuri	Respond to of 6018

FT editorial: news.ft.com Editorial comment: Soft deal Published: July 26 2000 19:34GMT \| Last Updated: July 26 2000 19:38GMT The Japanese government's decision to delay the sale of Nippon Credit Bank to the Softbank consortium is a welcome sign that politicians are taking seriously voters' anxieties about the deal. The plan to sell the decidedly "old economy" bank to a consortium led by Softbank, a "new economy" internet investment group, was deeply flawed from the start. The danger now is that the government will try to use the month's delay to allow disquiet about the deal to simmer down. Instead, it should reconsider its plans, recognising there is no cost-free solution to the country's chronic banking difficulties. Growing criticism of last year's sale of Long Term Credit Bank - now renamed Shinsei - has intensified the debate about Japan's bank sales. As a sweetener, in both that deal and in the case of Softbank, the government guaranteed to take back any loans that lost more than 20 per cent of their value within three years. The government claimed that this provision was unlikely to be needed. But within months of Shinsei starting operations, it has been forced to take back bad loans, most notoriously those of Sogo, a large retailer. Ministers were faced with an unpleasant choice: bail Sogo out with tax-payers' money or allow it to collapse. Japan has made two mistakes in its search for a politically easy solution to its banking crisis. First, it has failed to transfer enough risk to the banks' purchasers. By allowing loans that fall in value to be returned to the government, it has given the new owners an incentive to get rid of those that are going sour rather than trying to turn them round. The banks can therefore escape normal commercial disciplines. Adding risk to the sale would cost the government more money up front. But the example of Sogo shows that retaining residual risk is not cost free - neither financially nor politically. Second, the government has been complacent about conflicts of interest between the banks and their new owners. A bank should never lend to its parent company, because of the danger that it will relax its lending criteria. The Softbank deal seems to contradict this principle. Japan should therefore ignore Softbank's sabre rattling and recast the terms of the deal to sell Nippon Credit. Presently it neither transfers adequate risk nor sufficiently separates Softbank from Nippon Credit. It can be done. Recently two regional Japanese banks were sold to a US private equity group without the option of returning bad loans. It was more expensive for the government. But that reflected the true costs. Japan has no magic wand to rid the country of its banking problems.