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Sunday, May 18, 2003

Resona bank saved by massive bailout

Koizumi backs effective nationalization


By MAYUMI NEGISHI and REIJI YOSHIDA
Staff writers

In a move that effectively nationalizes Resona, the nation's fifth-largest banking group, the government on Saturday approved an emergency injection of about 2 trillion yen in public funds.

If necessary, the Bank of Japan said it will issue special loans to ensure that Resona Group, tied together by holding company Resona Holdings Inc., does not experience a serious credit crunch.

The Resona Group filed a request for emergency assistance following an extraordinary board meeting earlier in the day.

The group, which is also the designated financial institution for Osaka Prefecture, reported a capital shortfall that plunged the group's capital-to-assets ratio to around 3 percent, below the 4 percent needed for banks to operate domestically. The bank's main component bank, Resona Bank, saw its capital-to-assets ratio fall to a little above 2 percent.

The capital injection would boost Resona Group's capital adequacy ratio to 10 percent, the government said.

Prime Minister Junichiro Koizumi convened a financial crisis council in the evening to approve the capital injection -- the first under the Deposit Insurance Law -- and to declare full protection of deposits to prevent any runs on financial institutions.

"We decided we must do everything possible to make sure Resona's capital declines won't cause critical damage to credit stability in our nation and in the regions in which Resona operates," said Financial Services Minister Heizo Takenaka, quoting Article 102 in the Deposit Insurance Law prior to the meeting.

"This is not a crisis. We are meeting to prevent one."

No runs on automatic teller machines were reported and depositors near JR's Iidabashi Station in central Tokyo, at least, appeared calm.

"I always knew Resona had problems and I've already put some of my savings in another bank, so it's all protected," said Satoshi Maekawa, an engineer working for an electronics company in Tokyo. " But this makes you wonder why (Asahi Bank, Daiwa Bank and two regional banks) consolidated in the first place, if they were going under anyway."

The Resona Group is the reincarnation of the union of Daiwa Bank, Asahi Bank, Kinki Osaka Bank and Nara Bank.

The effective nationalization of Resona is likely to be welcomed by critics of the banking sector, who have long been calling for aggressive use of public funds to clean up banks' problems. Others will wonder whether Resona will ever become a profitable company after three consecutive years in the red.

Resona Holdings President Yasuhisa Katsuta announced his resignation, along with four other top officials, to take responsibility for the failure after requesting the emergency aid.

"We have always known that our low capital was our major weakness and had taken stringent restructuring efforts to reverse that," he said. "But we decided in the long run that if we can resolve all these issues at once, it will be best for our depositors and customers.

"As a member of the financial system, I thought it my duty to apply for funds for the sake of helping to maintain financial stability," Katsuta said.

For the year that ended in March, Resona Holdings expects its net losses to have exploded to 838 billion yen, nearly triple the 290 billion yen loss projected in March. It will be unable to pay dividends on preferred shares held by the government, in lieu of earlier capital injections of 1 trillion yen.

Although the group had suffered damage from stock price falls and the cost of disposing of bad loans, the critical blow came from auditors who refused to recognize deferred tax assets of 273 billion yen out of assets of 709.2 billion yen that the bank had chalked up as capital, Katsuta said.

The level of deferred tax assets a bank can calculate as capital is based on projected future profits. The problem is that these will not materialize until banks actually do make a profit.

Shin Nihon & Co., Resona Group's auditor, declared the group's projected profits unlikely, based on the economic climate and the bank's failure to get into the black for three years, Katsuta said.

Deferred tax assets are estimated to make up about half of the nation's largest banks' core capital. Much of the rest is made up of public funds, which banks must eventually return.

The bank will slash personnel costs by 30 percent, by cutting jobs and salaries, Katsuta said.

The group appointed Resona Holdings director Kenji Kawada, originally an executive at Asahi Bank, as Katsuta's successor.



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