Mizuho Holdings Inc, set to post Japan's biggest corporate loss, will ask its clients to fund 85 percent of a Japanese Yen 1 trillion (US$8.4 billion) bailout, raising concern it will become entangled in conflicts of interest.
"It would be a problem if Mizuho forces borrowers to invest by using its leverage" as a lender, said Minister for Financial Services Heizo Takenaka, who wants banks to stop lending money based on historical ties with clients that may stretch back decades and include cross shareholdings.
Mizuho wants customers such as Hitachi Ltd and Dai-Ichi Mutual Life Insurance Co to buy Japanese Yen 850 billion of preferred shares that pay annual interest of as much as 3.25 percent. It will also try to raise Japanese Yen 150 billion from overseas investors before the business year ends March 31.
Japan's seven big banks need capital to cut Japanese Yen 24 trillion of bad loans and avoid being seized by the government. By turning to customers to provide the funds, Mizuho may find it harder to refuse loans, charge higher interest or sell its stockholdings in the companies, investors said.
"Tapping customers to boost capital raises concerns that Mizuho will be burdened by its relationship with them," said Nozomu Kunishige, a banking analyst with BNP Paribas Securities Japan Ltd.
Mizuho officials were not immediately available for comment.
The bank's president Terunobu Maeda said on Jan. 21 that the bank won't use its status as a lender to secure investments from borrowers.
Mizuho provides banking services to 70 percent of publicly traded Japanese companies -- and those ties often go both ways.
Hitachi, which had Japanese Yen 774 billion of cash as of Dec. 31, supplies computer servers and other network equipment to the banking group.
Mizuho, which owns 3.3 percent of Hitachi according to Bloomberg data, has asked the company to invest, Hitachi vice president Yoshiki Yagi said on Thursday.
Dai-Ichi Mutual, Japan's second-largest life insurer, is "positively" considering a request to buy preference shares from Mizuho, said Hiroshi Hashizume, a company spokesman.
"Dai-Ichi is the largest shareholder of Mizuho," he said.
"If the offer comes, we will consider it," NTT DoCoMo Inc chief executive Keiji Tachikawa told reporters on Thursday.
"We do have lots of business with them. Lots of our customers use Mizuho bank accounts to pay us phone fees," he said.
Investors said companies should make sure they have a good reason to buy the preference shares.
"Using investors' money in something that has nothing to do with their business? If they do, they'd better have a killer explanation for shareholders," said Yoshiya Morimoto, who helps manage US$7.2 billion in Japanese stocks for Japan Investment Trust Management Co.
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