Japan lets US firm to take over LTCB

Japan lets US firm to take over LTCB
KUNIO INOUE

TOKYO, FEB 9: Japan formally pulled down barriers to its domestic banking industry with a decision to allow a foreign consortium, led by US investment group Ripplewood Holdings, to take over a failed crown jewel, the Long-Term Credit Bank of Japan (LTCB).

Government officials said they hope the first foreign takeover of a major Japanese bank, approved by regulators on Wednesday morning, will help spur improvements in the beleaguered banking industry.

"In finance, the US is ahead in technology and products,and Japan is trying to learn from that," Finance Minister Kiichi Miyazawa told a news conference. "(The sale of LTCB) will bring in new technology, and this will good for Japan's economy." LTCB, which collapsed under the weight of bad loans made during an asset-price bubble a decade ago, was placed under state control in October 1998 for rehabilitation and eventual resale. Last September, the government gave priority rights to a Ripplewood-led consortium, called New LTCB Partners, in negotiations on theLTCB takeover, but a final agreement was slow in coming as the two sides worked through the details.

Under the final deal signed with the government's Deposit Insurance Corp (DIC), the Ripplewood consortium will pay one billion yen ($9.14 million) to purchase about 2.4 billion LTCB common shares from the DIC on March 1. The consortium will pay an additional 120 billion yen for 300 million new common shares in LTCB, while the government agreed to inject 240 billion yen in public funds to bolster LTCB's capital base.

The government said last September it had already spend 3.6 trillion yen in taxpayers' money to balance LTCB's books. "New LTCB will be able to start its business on March 2," a government official said. Masamoto Yashiro, the head of New LTCB and a former chairman of Citibank NA, the Japanese arm of Citi group, told a news conference the new bank hopes to achieve a net operating profit of 50 billion yen within two years of its start.

LONG-TERM PERSPECTIVE: Responding to Japanese governmentconcerns, the Ripplewoodconsortium, which includes foreign financial firms such as ABN AMRO, Deutsche Bank and GE Capital, pledged in the final agreement that it will operate LTCB with a focus on long-term objectives rather than short-term gains.

Ripplewood will be allowed to sell some of LTCB's shareholdings to cash in on 250 billion yen in unrealised profits and apply the proceeds to strengthening LTCB's capital base. This, combined with the 240 billion yen public fund injection, will give the bank a comfortable 13 percent capital adequacy ratio. In addition, Ripplewood will be able to sell to the DIC any of LTCB's shareholdings which contained unrealised losses as of January 31.

But Ripplewood will be obligated for at least three years notto sell LTCB's loan-related assets or take overly aggressive loan collection steps, which the government fears would create undue hardships for existing borrowers, banking sources said.