UFJ Holdings Inc. will probably suffer a net loss of more than 700 billion yen for the fiscal first half of 2004, bank sources said Wednesday.
The ailing banking group, which earlier anticipated an interim group net loss of 210 billion yen in the April-September period, now expects to see deeper losses due to intensified writeoffs of bad loans, the sources said.
UFJ is stepping up efforts to clean up its books before a planned merger with Mitsubishi Tokyo Financial Group Inc. through the disposal of bad loans extended to such large-lot borrowers as retailer Daiei Inc. and trading house Sojitz Holdings Corp.
MTFG has decided to provide 700 billion yen in financial support for UFJ at the end of September, making it likely that the group will maintain its capital adequacy ratio above the 8 percent minimum required for banks with international operations.
UFJ plans to submit a new rehabilitation plan to the Financial Services Agency possibly Friday and announce revised interim and full-term earnings forecasts, they said.
UFJ said in May it will likely manage to report a group net profit of 330 billion yen for the full fiscal year. But now it is expected to incur a loss exceeding 400 billion yen for the fourth consecutive year of losses.
UFJ and MTFG signed a basic merger accord in mid-August in a deal that would create the largest banking group in the world, with total assets of about 190 trillion yen. The two groups plan to integrate their banking, trust banking and brokerage operations under a holding company in October 2005.
UFJ Holdings Inc. President Ryosuke Tamakoshi and UFJ Bank President Takamune Okihara will give up executive compensation beginning in October, UFJ Holdings officials said Wednesday.
The move — apparently aimed at the pair taking responsibility for the group’s poor performance — will leave them unpaid for a certain period, with the group having already withheld their bonuses.
UFJ, Japan’s fourth-largest banking group, is expected to see a sharp rise in its group net loss for the first half of the current fiscal year because it is accelerating its disposal of nonperforming loans.
The value of the group’s bad-loan disposal is expected to shoot up to 700 billion yen or 800 billion yen from the initially planned 210 billion yen during the first half through Sept. 30.
The group is also considering cutting other board members’ executive compensation by more than 50 percent and ordinary employees’ winter bonuses by a considerable amount to further cut costs, the officials said.
The group will report those measures in a restructuring plan it will submit to the Financial Services Agency on Friday, according to the officials.
In its midterm earnings report, the UFJ group is expected to book a huge net loss, according to banking industry analysts. This is because it will book some of its deferred tax assets as losses instead of booking all of them as assets.
Banks are allowed to count deferred tax assets as part of their core capital on the assumption that the taxes they pay on a loan-loss provision will be refunded later.
But the group apparently plans to limit the use of the accounting rule to regain its financial health faster.
The analysts said that despite the massive net loss, the UFJ group will secure a capital adequacy ratio of 8 percent — the minimum required for banks operating internationally — because Mitsubishi Tokyo Financial Group Inc. will provide the UFJ group with about 700 billion yen at the end of September.
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