Japan Leasing Corp. — one of three nonbank affiliates of the troubled Long-Term Credit Bank of Japan — has failed and its top management will step down soon, the company said Monday.
The announcement was made one day after the firm effectively went bankrupt with debts topping 2.18 trillion yen, a record amount for a single corporate bankruptcy.
Japan Leasing, the second-largest company in the nonbank financing industry, filed a request Sunday night with the Tokyo District Court for legal protection from its creditors under the Corporate Reorganization Law. The request immediately was approved by the court, the officials said.
Now that Japan Leasing has failed, it has become increasingly likely that two other LTCB-affiliated nonbank moneylenders will eventually be liquidated, industry sources said.
At a news conference Monday morning, Hiroaki Okamoto, president of Japan Leasing, apologized to creditors and shareholders for the firm’s sudden failure. “Since Aug. 21 (when the LTCB announced reform plans for itself and its affiliates), we have designed our reform plans on the condition that the LTCB would give up its claims on loans to us,” he said. “However, some financial institutions have taken steps to keep their claims intact, and these measures disrupted our reform plans.”
In its restructuring plan, the LTCB said it would give up its claims on a total of 520 billion yen in loans to its three nonbank affiliates — Japan Leasing, Nippon Landic Co. and Nippon Enterprise Development Corp.
For Japan Leasing, the LTCB had claims totaling 256 billion yen as of Monday, according to the LTCB. Recently, however, Yasuda Trust & Banking Co. announced it will keep its claim to Japan Leasing intact, as the ongoing Diet discussion on financial reform bills stalled on how to treat the troubled LTCB.
The government last week changed its position and announced it will not support the LTCB plan to give up its claims on loans to its nonbank affiliates, making the restructuring of the nonbank firms under the original scheme impossible.
The leasing firm filed a bankruptcy application with the court because the prospect of its rehabilitation turned bleak as an increasing number of its creditors expressed a reluctance to approve its reconstruction plans, Okamoto said.
According to company lawyers, the amount of its debt currently is estimated at 2.18 trillion yen, but the total amount will probably surpass 2.4 trillion yen. The specific amount will be clarified as the firm follows court procedures, they said.
The amount is the largest of its kind in the nation’s postwar era, exceeding the 1.18 trillion yen owed by Crown Leasing Corp., which was declared bankrupt in April 1997.
Claims to the loans extended to the firm prior to Aug. 26 will thus be shelved, but daily operations will continue with little change, the lawyers said. They stressed that their filing a request for the Corporate Reorganization Law means Japan Leasing still has a chance to be revived under new management and that it will make every effort to repay its debt.
The collapse of Japan Leasing will probably affect restructuring plans at the troubled LTCB and its two other affiliates. Japan Landic Corp. and Nippon Enterprise Development Corp., like Japan Leasing, were planning to restructure their operations on the assumption that their major creditor, LTCB, will give up claims on its loans to them.
If all three LTCB affiliates collapse, even big banks would have to sharply increase their provisions for possible loan writeoffs.
Vice Finance Minister Koji Tanami said Monday the Finance Ministry will keep watching for possible financial ripples from the Japan Leasing failure.
At a regular news conference, Tanami said the ministry must be alert to maintain financial system stability, in light of the impact on major lenders to the failed nonbank. The ministry will seek to protect the financial system in close contact with the Financial Supervisory Agency and the Bank of Japan, he added.
In a statement, the LTCB said because of the firm’s failure, the bank will have to prepare for losses totaling over 250 billion yen. “We regret that with the firm’s failure, the reform measures we announced, including resigning our claims to the firm totaling about 250 billion yen, have faced difficulties,” the bank said in the statement.
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