The Japanese government's nationalization of Ashikaga Bank Ltd, the country's first bank takeover in five years, won't hamper the economy's recovery, Japan's finance minister said.
"The Japanese economy will not suffer a sudden deterioration as a result of Ashikaga's nationalization," Sadakazu Tanigaki said on Fuji Television. "Ashikaga's business operations will continue, and we have taken measures to protect clients and depositors."
Japan's economy grew for a seventh quarter in the three months to September, expanding 0.6 percent in the longest economic expansion since 1997. Figures out Friday showed an unexpected rise in the jobless rate to 5.2 percent in October.
The government yesterday said it has yet to decide on the size of the bailout for the bank, whose debt exceeded assets by ?102.3 billion (US$934 million) at the end of September. The Nihon Keizai Shimbun reported Friday that the government will inject ?1 trillion into the company, the main lender in Tochigi Prefecture, north of Tokyo.
The bank's nationalization is the first since 1998, when the government nationalized Long-Term Credit Bank of Japan Ltd and Nippon Credit Bank Ltd. Japanese banking debts soared when a real-estate bubble burst in the early 1990s. The value of commercial property, used as collateral for many corporate loans, fell by about 70 percent.
"Markets will react to this incident calmly because all deposits will be protected," Prime Minister Junichiro Koizumi said at a press conference in Tokyo yesterday. "It's regrettable, but we need to implement careful measures to avoid concern and disorder and try to revitalize the region."
Shares of Ashikaga Financial Inc, the parent of Ashikaga Bank, will be removed from the Nikkei 500 index today and replaced with those of Kurabo Industries Ltd on Wednesday, the newspaper said.
The Tokyo Stock Exchange will move Ashikaga's shares into a special monitoring unit for companies whose capitalization and income do not meet minimum requirements for the first and second sections of the exchange.
Shares of Ashikaga Financial slumped 24 percent Friday after newspapers reported the possible takeover by the government. The Topix Banking Index dropped 0.9 percent.
"In the bubble era, Ashikaga lent to many companies without doing its own credit analysis," Shinichi Tamura, a banking analyst at UBS Securities Japan Ltd in Tokyo, said yesterday. "It was also a year or two late in retreating from those loans after the bubble burst."
The prime minister last organized a bailout of a bank in May, when he approved an US$18 billion rescue for Resona Holdings Inc., the nation's fifth-largest lender by assets. The Topix Banking Index, which tracks the performance of 84 lenders, has gained 61 percent since the Resona bailout was announced.
Ashikaga was one of 10 Japanese regional banks told by regulators to improve earnings this year or risk ceding control to the government. Koizumi agreed to bail out the bank at an emergency meeting yesterday with Minister for Financial Services Heizo Takenaka and Tanigaki in Tokyo.
Unlike the Resona bailout, which preserved shareholders' equity, investors in Ashikaga will lose their stakes.
"It is very regretful, considering the feelings of shareholders," Takenaka said.
"This is good news," Neil Dwane, chief investment officer for Europe at Allianz Dresdner Asset Management in Frankfurt, where he oversees US$65 billion in stocks including shares in Japanese companies, said yesterday. "They are finally getting to grips with the financial situation in Japan."
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