UFJ Holdings Inc., one of Japan’s top four banking groups, will probably book a net loss of some 100 billion yen for 2003, with its loan-loss charges having swelled to about 1 trillion yen, banking sources said Monday.
The news prompted a selloff of banking shares on the Tokyo Stock Exchange, sending the overall Nikkei average plummeting more than 300 points to a fresh three-month low below 10,600.
The UFJ group’s top managers, including UFJ Bank President Masashi Teranishi, are now expected to face pressure to resign.
ChuoAoyama Audit Corp., UFJ’s accounting firm, urged the group to put up 200 billion yen more in loan-loss provisions than it had earlier planned for its loans to struggling corporate borrowers, the sources said.
As a result, UFJ Holdings is revising the earnings forecasts it released April 28, according to the sources.
At that time, UFJ Holding downgraded the combined net profit forecast for its core banks — UFJ Bank and UFJ Trust Bank — to 125 billion yen, by stepping up forecasts for their loan-loss charges to 813 billion yen, against a projected operating profit of 792 billion yen.
But ChuoAoyama Audit told the banking group to book even larger loan-loss charges for the year to March 31, stating that bad-loan disposal is necessary for the group to return to the black in fiscal 2004 and thereafter, the sources said.
With the Financial Services Agency supporting the auditor’s recommendation, the UFJ group decided to add 200 billion yen to the loan-loss provisions, bringing them to more than 1 trillion yen, according to the sources.
If the April 28 forecasts are revised down further, the UFJ group will be booking a net loss for the third straight business year since it was formed through the 2001 merger of Sanwa Bank, Tokai Bank and Toyo Trust & Banking Co.
The buildup of loan-loss provisions reflects the FSA’s so-called 30 percent rule, under which the management of banks receiving public financial help will be disciplined if their net profit falls short of goals specified in management improvement plans submitted to the FSA by more than 30 percent for two business years in a row.
The banks that formed the UFJ group received a combined 1.65 trillion yen in public funds in fiscal 1998 and 1999 to replenish their capital bases.
Should the UFJ group book a net loss in fiscal 2003, the disciplinary rule will be applied to the group’s managers, the sources said.
UFJ Holdings is scheduled to release its financial results for fiscal 2003 on May 24.
The government has set a goal of compelling leading banks to halve their ratio of bad loans to their total outstanding loans by next March 31, from the corresponding ratio at the end of March 2002.
Last autumn, FSA inspectors demanded that the UFJ group set aside more loan-loss reserves for its large corporate borrowers.
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