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Mizuho Holdings Inc. played its final trump card last week in a bid to get rid of nonperforming loans once and for all, turning to some of its largest business partners to raise an unprecedented 1 trillion yen to boost its capital base.

The move comes ahead of a second round of special inspections by the Financial Services Agency scheduled to begin in February.

Mizuho Holdings President Terunobu Maeda appears prepared for the worst. He says it cannot be helped if the bank is unable to honor a promise to return public funds, a scenario for which he may be held responsible.

On a more positive note, Maeda was able to reduce drastically the conversion of deferred tax assets into capital, a move strongly called for by Financial Services Minister Heizo Takenaka.

In October, Takenaka met with leaders of major banks three times in preparing the Program for Financial Revival. Takenaka is said to have stiffened his stance toward Maeda after the bank chief argued against the minister.

Mizuho fell from grace following massive technical problems with its automated teller machine network in April 2002, and has yet to recover fully. The Takenaka reform program began against this background, sending Mizuho share prices into a tailspin.

In summer 1999, when Mizuho group companies agreed on a management integration, a senior official of the Financial Supervisory Agency, now the FSA, was asked by a top official of the Federal Reserve Bank of New York: “Isn’t the new business group too large to be able to control the impact of the recession and monetary policies?”

Mizuho Bank is the main bank for as many as 40 percent of listed companies. It has a broad range of dealings with small and medium-size companies. Its health, therefore, tends to reflect that of the economy as a whole.

Sumitomo Mitsui Banking, which has two giant industrial conglomerates behind it, says it has no plans to ask for help from its business partners for a capital increase. Instead, the bank is moving toward enlisting the support of a U.S. investment bank.

In contrast, Mizuho Group in December began searching for ways to conduct a large capital increase with the help of Japanese companies alone. It was well aware that Takenaka is not in favor of seeking the assistance of business partners for fundraising.

Among Mizuho’s large borrowers are Seibu Department Stores Ltd. and Hazama Corp., both of which are in financial trouble. Mizuho has extended 230 billion yen in assistance to Seibu.

Mizuho needs to strengthen its capital base by all means to take drastic measures in dealing with distressed companies. It has no other choice because it has already started disposing of nonperforming loans on the premise that it can boost its capital.

The bank’s capital-increase program has only given faint hope for a revival in Japanese industry.

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