Merrill Lynch & Co agreed to invest Japanese Yen 100 billion (US$831 million) in a bad-loan venture with UFJ Holdings Inc, Japan's fourth-largest lender, which needs capital after posting a record loss.
The investment will enable Merrill to expand its advisory business in Japan, where banks are bidding to restructure Japanese Yen 52.4 trillion of bad debt. The biggest US securities firm by capital shut most of its brokerage branches in Japan in the past two years to stem losses stoked by a tumbling stock market.
"Merrill Lynch is enthusiastic about working with UFJ to offer creative solutions in resolving problem loans," said Takayuki Inoue, a Tokyo-based spokesman for the firm.
Japanese banks need to raise capital to replace funds used to write off bad loans and cover losses on stock investments. UFJ had a Japanese Yen 1.23 trillion net loss in the year ended March 31, the second biggest posted by a local lender.
More than 10 percent of UFJ's loans are classified as non-performing. It plans to shift Japanese Yen 1 trillion of bad debt into a new asset-management unit in which Merrill will buy preferred shares, UFJ said in a statement.
UFJ, which last year posted the second-worst loss by a Japanese bank, said it will cut 20 percent of its group executive posts by March 2004, and to eliminate more than 1,000 jobs in the banking group by March 2005. It will also close more than 100 of its 660 group branches by March 2005. The lender said it targets a reduction in its ratio of bad lending to 3 percent from 10 percent.
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