Resona Holdings Inc. said Friday it will post a first-half net loss of 1.76 trillion yen, a stark reversal from originally projected net profits of 22 billion yen.
The huge loss stems from a radical cleanup of the bank’s finances. Clearing its books meant using up most of the 1.96 trillion yen in public money it received at the end of June.
The fact that it is dealing with its bad loans was seen as a positive development by investors. Shares of Resona, which hit the all-time low of 47 yen in mid-May, closed at 171 yen on Friday.
Resona Group chairman Eiji Hosoya said that booking the huge loss was necessary to turn the lender into an ordinary, profit-making business. He pledged a return to the black on a full-year basis in the year ending March 2005.
“The losses completely eliminates future risk factors at Resona and are necessary for the group to make sustainable profits,” Hosoya said during a news conference.
A big chunk of the loss is due to a stricter assessment of bad loans that forced Resona to set aside 1.26 trillion yen in loan-loss reserves during the six months through September.
The bank also made more realistic use of a book-keeping tool that allows it to count deferred-tax assets as capital, allowing for 47 billion yen worth of these potential credits — 10 percent of what it counted in March.
Deferred-tax assets only materialize if a bank actually turns a future profit.
These controversial assets also triggered the bailout when one of Resona’s auditors refused to sign off on a fiscal 2002 balance sheet laden with them.
Resona will count only a year’s worth of these possible government givebacks as part of its capital, Hosoya said. Other major banks count five years’ worth.
The numbers revealed Friday pose some tricky questions for Financial Services Minister Heizo Takenaka, who pressed for the capital injection based on projections of a profit — swearing that the banking group would be profitable in fiscal 2003.
According to the group’s financial reports announced in May, the public funds should have lifted Resona’s ratio of capital-to-risk assets to 12 percent. Instead, Resona’s capital-adequacy ratio is set to fall to 6.5 percent.
Hosoya denied the new numbers can be viewed as evidence of window-dressing under the previous management. He said the turnaround is due to changes over the past six months and a different set of management priorities.
“A comparison is impossible,” he said. “We are using a completely different ruler.”
The new management team, which took over in June, has adopted U.S.-style asset-calculation techniques and set aside more reserves than other Japanese banks against loans that might turn sour in the future.
The result of applying these standards to member and regional banks Kinki Osaka Bank and Nara Bank was that the two banks’ capital adequacy ratio dipped below the 4 percent required to operate in Japan.
Resona Holdings will make up for the capital shortfall, anteing up 300 billion yen for Kinki Osaka and 4 billion yen for Nara Bank.
Kinki Osaka will sell its Osaka headquarters in an effort to restructure.
The new set of projections came as no surprise to analysts, who are accustomed to seeing a different set of numbers turn up when the books are re-examined following a failure, acquisition or nationalization.
Analysts said they were glad Resona’s numbers could be believed at last.
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