Resona vows early bailout payback

by Shigeru Sato and Takako Taniguchi

Bloomberg

Resona Holdings Inc., recipient of a ¥1.96 trillion bailout in 2003, plans to pay back most of the money still owed to taxpayers earlier than scheduled thanks to growing profit reserves.

“We’ve built retained earnings and are not going to sell new shares,” Resona President Seiji Higaki, 60, said Wednesday in an interview in Tokyo. The bank will purchase ¥450 billion of the government’s preferred shares earlier than the current target of late 2015, he said.

Taxpayers have injected ¥3.1 trillion into Resona since 1999, when banks were saddled with bad loans after the asset bubble burst, and the Tokyo-based lender still owes ¥872 billion. Resona has turned itself around since the 2003 bailout, posting profit in the past eight fiscal years by focusing on lending to retail customers.

“Our core business is retail banking, and what we need the most is to expand the number of household and corporate clients,” said Higaki, who took the post in 2007 to join Chairman Eiji Hosoya in overseeing the bank’s revival.

Resona, Japan’s fifth-biggest bank by market value, is more profitable than larger rivals because it targets mortgages and small-business loans that carry higher interest rates, said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc.

“The bank will keep its focus on high-yielding lending such as mortgages and loans for smaller enterprises rather than large companies,” Nakamura said.

The net interest margin at Resona stood at 1.22 percent in March, compared with 1.04 percent for Mitsubishi UFJ Financial Group Inc., the country’s biggest bank, and 0.78 percent for Mizuho Financial Group Inc., according to data compiled by Bloomberg.

Resona’s net income climbed 59 percent to ¥253.7 billion in the year that ended in March as provisions for soured loans fell, according to statements released last week. The bank is forecasting that profit will drop 45 percent to ¥140 billion in the current year in anticipation of credit costs rising as government relief on loan repayments for small businesses expires.

Shares of the lender have declined 11 percent this year, underperforming the 84-stock Topix Banks Index, which has advanced 0.4 percent.

Higaki said he wants to move the debt repayment schedule forward by using retained earnings built up over the past year, without disclosing a new timeline. Resona increased the portion of profit that’s reinvested rather than paid to stockholders by 24 percent last fiscal year to ¥1.09 trillion as of March 31.

“We may split the purchase of the ¥450 billion of preferred stock into several portions, depending on how fast and how much we build reserves in the next four years,” Higaki said.

Resona sold ¥545 billion in new shares in January 2011 as part of Chairman Hosoya’s goal to buy ¥1.3 trillion in preferred shares from the government by 2015. The bank has bought about ¥800 billion of the stock since the target was unveiled in November 2010.