The Long-Term Credit Bank of Japan, suffering a battering in the market over its financial problems, seeks to merge with Sumitomo Trust & Banking Co. in what is largely seen as its de facto absorption, industry sources said Friday.
The LTCB’s massive nonperforming loans, coupled with its plummeting stock price, led management to give up restructuring efforts and instead find outside help, they said.
If brought about, it would be the first merger between a long-term credit bank and a trust bank in Japan. The presidents of the two banks were to hold separate news conferences late Friday night regarding media reports of the proposed merger.
The LTCB has not ruled out a merger to resolve its crisis. Company executives have said on various occasions recently that a merger is “one option” in raising its share price, which at one point Thursday dropped to its face value of 50 yen per share.
However, because both banks are saddled with massive nonperforming loans, the merger is expected to require the financial support of the government.
Industry sources said that under the merger plan, the LTCB’s problem loans might be sold off or transferred to such institutions as the Resolution and Collection Bank or a new special bank under proposal and discussion by the government and the ruling Liberal Democratic Party.
Sumitomo Trust would probably request assistance from the government by applying for public funds via Deposit Insurance Corp. to shore up its capital base after it acquires the LTCB, the sources said.
The LTCB, one of the nation’s three long-term credit banks, has been faced with a rise in contract cancellations of its bank debentures by individual customers after numerous media reports and market rumors indicated its soundness was in doubt.
The LTCB was founded in 1952 and raises funds principally by issuing debentures — the equivalent of corporate bonds — to supply money for industrial development.
Last July, in an effort to weather the “Big Bang” financial deregulation, it announced formation of a strategic alliance with Swiss Bank Corp. The LTCB has jointly set up an investment bank, LTCB Warburg Securities, and an asset management company, LTCB UBS Brinson, with the bank.
But despite the infusion of 170 billion yen in public funds in March to shore up its capital base and provide leeway to write off nonperforming loans, the bank still had 1.38 trillion yen in problem loans — loans to bankrupt borrowers, loans in arrears for over three months and restructured loans — at the end of fiscal 1997.
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