Shinsei Bank, formerly the Long-Term Credit Bank of Japan, has unofficially asked the state-run Deposit Insurance Corp. to buy 200 billion yen in outstanding loans made to major department store operator Sogo Co., bank sources said Wednesday.
A formal application requesting the DIC to buy the credits may be filed later this month, the sources said.
Following its collapse under the weight of bad loans and its subsequent nationalization in late 1998, the LTCB and its problem loans and deposit liabilities were sold March 1 to an international consortium led by Ripplewood Holdings LLC.
The Feb. 9 accord between the DIC and the consortium obliges the DIC to buy at the March 1 book value any outstanding Shinsei loan with a market value that has fallen by more than 20 percent since that time.
The accounting firm Shinsei used has recently determined that the value of the loan to Sogo has plunged by more than 20 percent from its March 1 book value, the sources said.
Sogo recently asked 72 creditor banks, including Shinsei, which began operating June 5, to forgive 631.9 billion yen in loans to help it rehabilitate itself. Sogo owes 200 billion yen to Shinsei and has asked for 97 billion yen of the claims to be waived.
There has been heavy speculation on whether Shinsei will grant Sogo’s request.
The DIC will first ask independent accountants to examine the quality of the 200 billion yen loan, they said.
If the DIC approves the application, it will also consider forgiving the 97 billion yen Sogo requested, a move that may prompt other creditor banks to help.
Prior to selling the LTCB, the government funneled 3.5 trillion yen into the bank so the consortium could assume the duty of refunding deposits and other liabilities on demand.
Before the DIC agrees to buy the loan from Shinsei, it will consider whether Sogo is viable and whether granting Sogo’s request would increase the likelihood that its remaining debts would be recovered, they said.
The DIC will also consider whether granting Sogo’s request would help avoid aggravating the unemployment situation in Japan, they said.
Corporate executives seeking a waiver of their debts should take responsibility for their own management failures, the chief of the Japan Federation of Employers Associations (Nikkeiren) said Wednesday.
Speaking at a press conference, Hiroshi Okuda also expressed his displeasure with banks that meet their corporate clients’ requests to relinquish claims on their loans.
Okuda, who is also chairman of Toyota Motor Corp., made the comments amid a stream of such loan-forgiveness requests by ailing companies, including the Sogo Co. retailing group’s request that Shinsei Bank and other creditor banks forgive their claims on loans.
“In my view as a manufacturer, it is not good for financial institutions to waive huge amounts of debt while accepting deposits at low interest rates and posting net operating profits,” he said. “This creates a moral problem. Banks are also responsible.”
Nikkeiren is one of the most powerful business lobbies in Japan.