The Financial Reconstruction Commission on Tuesday effectively named an investment consortium led by Ripplewood Holdings L.L.C. of the United States as the buyer of the nationalized Long-Term Credit Bank of Japan.

By the end of the year, if everything goes as planned, LTCB will become the first major Japanese commercial bank to come under foreign ownership. LTCB was declared bankrupt with heavy losses under massive bad loans and placed under temporary state control last October.

The sale should affect the nation's financial sector realignment as Ripplewood has a clear vision of improving the bank's profitability, FRC Chairman Hakuo Yanagisawa said.

"This will greatly stimulate Japanese banks," Yanagisawa said at a news conference.

LTCB will negotiate with the consortium, "New LTCB Partners," to formalize the deal by the end of November, according to a memorandum of understanding signed by all parties the same day.

The sale of LTCB will require an estimated 4 trillion yen in Japanese taxpayer money, Yanagisawa said. This includes some 3.6 trillion yen to cover the expanded loss stemming from sales of bad loans to Resolution and Collection Corp., the government-backed debt-collection firm. Another 400 billion yen to 500 billion yen is expected to be needed to write off all of LTCB's bad loans.

Separately, the government intends to pump 240 billion yen in public funds into the new LTCB to reinforce its capital base. This capital injection will be made through the government's acceptance of new preferred stocks issued by the bank. The FRC hopes the funds will be returned in future, with a possible capital gain, Yanagisawa said.

The consortium will purchase LTCB for 120 billion yen by accepting the bank's newly issued common stocks.

The FRC and Ripplewood have basically agreed that unrealized profit of nearly 300 billion yen on LTCB's shareholdings will be incorporated into the bank's capital. The unrealized profit has been created because of surging stock prices since spring, the FRC said.

As a result, the new bank's capital adequacy ratio will be around 13 percent, far higher than the minimum 8 percent required for internationally active banks.

After the consortium's takeover of LTCB, the government will buy LTCB's claims on outstanding loans at their book values if they sour due to a fall of 20 percent or more in their market values over the next three years, the FRC said.

The new LTCB will be run by Masamoto Yashiro, a Japanese banker credited with having built Citibank's successful operations in Japan as chairman and chief executive officer.

A majority of directors will be Japanese. Ripplewood has invited Takashi Imai, chairman of the Japan Federation of Economic Organizations (Keidanren) and Hirotaro Higuchi, honorary chairman of Asahi Breweries Ltd. to serve as directors.

Paul Volcker, former U.S. Federal Reserve Board chairman, will serve as a senior adviser.

New LTCB Partners has been set up in Amsterdam. Proposed investors include U.S. and European financial institutions such as General Electric Capital Corp., Mellon Bank Corp., Paine Webber Inc., ABN-Amro Bank, Deutsche Bank, Travelers Insurance and the Bank of Nova Scotia.

NLP will consider allowing Japanese institutions to acquire an interest in the new LTCB through a partnership, according to the business proposal made by Ripplewood.

The FRC and LTCB had been seeking a purchaser since February with Goldman Sachs (Japan) Ltd., a unit of the U.S. investment bank, as an adviser. Yanagisawa had set an original target date of April 30.

The FRC opted for Ripplewood over an alliance of Mitsui Trust & Banking Co. and Chuo Trust & Banking Co. The decision was based on five factors, including minimizing taxpayer burden and raising the bank's efficiency, Yanagisawa said.