The Japanese government is set to hold an emergency financial crisis meeting to discuss a public fund injection into a troubled regional bank under Ashikaga Financial Group, news reports said yesterday.
While the government and the company called the reports "speculation," investors said they had already priced the news into the market and the stock exchange suspended trading in the group's shares.
The government plans to hold the emergency meeting chaired by Prime Minister Junichiro Koizumi "soon" to decide whether public funds are needed to prop up Ashikaga Bank, the financial daily Nihon Keizai Shimbun said.
After a probe by watchdog the Financial Services Agency, the group's capital-to-assets ratio could fall to almost negative 1 percent as of the end of March, the financial daily said.
If the Japanese government decides to nationalize the bank, some ?1.0 trillion (US$9.2 billion) would be needed, the newspaper said.
Ashikaga Financial Group is based in Utsunomiya, Tochigi Prefecture, northeast of Tokyo. Formed by Ashikaga Bank and its affiliates in March 2003, the group has total assets of about ?5.2 trillion and deposits of ?4.9 trillion.
The government denied any immediate plan to use taxpayers' money to rescue the financial group.
"We are not at the stage to consider anything [to that effect]," Financial Services Minister Heizo Takenaka told reporters.
Ashikaga Financial also said in a statement that "reports were based on speculation" and that the group was "taking the results of the inspection seriously" while compiling figures for the half-year financial results.
But investors said they had already priced the news into the market.
"The news was already within our expectations," said Mitsuru Sahara, vice president of foreign exchange at UFJ Bank.
"Rather, the news made us consider if similar cases may happen to other regional banks, and that would be a negative element for the yen and [Japanese] stocks," Sahara said.
The Tokyo Stock Exchange suspended trading in Ashikaga Financial Group to avoid confusion in the market due to the reports. Shares in Ashikaga closed at ?106 Thursday.