TOKYO: Japan's Takefuji Corp will file for bankruptcy on Tuesday, Sept 28 owing $5.2 billion, sources said, making it the biggest consumer lender to fail since courts ordered them to repay borrowers for excessive interest charges.
Takefuji, which has been considered at risk of failing as it lacks the financial backing of a big Japanese bank, will ask the courts to protect it from creditors, two sources close to the matter told Reuters on condition they were not identified.
Takefuji and other consumer lenders have struggled to survive after the Japanese courts ruled in 2006 that they had charged too much interest and had to repay borrowers. A recent government cap on interest rates has further hobbled the industry.
The ruling on interest repayments has already claimed several smaller casualties among consumer lenders. The fear now for Takefuji's rivals is that its failure will spark a run of claims by their borrowers worried that they will not get the refund the court ruling promised.
Analysts said Takefuji's problems posed little wider threat to the overall system, however, because depositor's funds were not at risk.
"Takefuji has raised most of its capital in bonds, which are largely held by foreign investors, mostly hedge funds, so the bankruptcy would not have a big impact on the financial system," Deutsche Securities credit analyst Junichi Shimizu said.
UNDER PRESSURE
A Takefuji spokesman declined to comment. The company on Monday said that it had not decided to file for bankruptcy.
Shares of Takefuji, which have fallen about 56 percent this year, did not trade for a second day on Tuesday on a glut of sell orders. The Tokyo Stock Exchange, which suspended trade of the consumer lender's shares for most of Monday, placed it on watch for potential delisting, citing the possibility of it failing.
Shares in rivals slipped further after sharp falls on Monday.
Acom Co, 37 percent owned by Mitsubishi UFJ Financial Group and considered the strongest among Japan's top four consumer lenders, fell 1.3 percent. Unaffiliated Aiful Corp slid 3.3 percent, while Promise, 20 percent owned by Sumitomo Mitsui Financial Group, declined 0.9 percent.
Shinsei Bank, Japan's first foreign-owned lender, operates two consumer finance units under the brands Aplus and Lake, which, unlike its competitors, it funds with deposits.
By affiliating with banks, consumer lenders have secured a steady funding source, according to Takehito Yamanaka, senior analyst at MF Global FXA Securities
"Takefuji did not have the money to make new loans, but others are not in such a situation," he said.
BONANZA OVER
Consumer finance companies emerged as big lenders in the 1990s as Japan's economy tanked and commercial banks reined in credit. Able to borrow at very low rates, they charged interest of nearly 30 percent, allowing them to absorb high default rates on uncollateralised loans. Reimbursements and the state intervention ended the bonanza.
"Lenders may need to boost their reserves and impairment of their capital as a result of any increases in demands for interest refunds," said Deutsche Securities' Shimizu.
"Aiful has a relatively thin equity capital cushion compared with Acom and Promise. Promise is weaker than Acom but the market has seen that SMFG could help the firm raise funds," he added.
Late last year, Aiful staved off bankruptcy by convincing its creditors to defer about 280 billion yen in bank loan principal payments.
Starting as a small money lender in 1966, Takefuji grew to become Japan's biggest consumer finance company. Its founder Yasuo Takei was ranked by Forbes as Japan's second-richest person in 2005, worth $5.6 billion.
But a series of scandals over heavy-handed debt collection and a conviction for Takei in 2004 for ordering wiretaps on journalists, marked the beginning of a state crackdown on a business seen by industry critics as little better than loan sharking. Takei died in 2006.
Japan's consumer finance squeeze culminated this year with a state-engineered credit crunch. In June, the government capped interest rates at 20 percent, down from 29.2 percent, and limited the amount individuals can borrow to one-third of their income.
Japan's banking minister Shozaburo Jimi said on Tuesday his government would study the impact that interest reimbursements were having on consumer lenders, but didn't comment on whether that could mean a relaxing of regulations.
Takefuji had 433.6 billion yen ($5.2 billion) in liabilities as of the end of June, research firm Tokyo Shoko Research said, including about 135 billion yen in bonds.
Takefuji, which has been considered at risk of failing as it lacks the financial backing of a big Japanese bank, will ask the courts to protect it from creditors, two sources close to the matter told Reuters on condition they were not identified.
Takefuji and other consumer lenders have struggled to survive after the Japanese courts ruled in 2006 that they had charged too much interest and had to repay borrowers. A recent government cap on interest rates has further hobbled the industry.
The ruling on interest repayments has already claimed several smaller casualties among consumer lenders. The fear now for Takefuji's rivals is that its failure will spark a run of claims by their borrowers worried that they will not get the refund the court ruling promised.
Analysts said Takefuji's problems posed little wider threat to the overall system, however, because depositor's funds were not at risk.
"Takefuji has raised most of its capital in bonds, which are largely held by foreign investors, mostly hedge funds, so the bankruptcy would not have a big impact on the financial system," Deutsche Securities credit analyst Junichi Shimizu said.
UNDER PRESSURE
A Takefuji spokesman declined to comment. The company on Monday said that it had not decided to file for bankruptcy.
Shares of Takefuji, which have fallen about 56 percent this year, did not trade for a second day on Tuesday on a glut of sell orders. The Tokyo Stock Exchange, which suspended trade of the consumer lender's shares for most of Monday, placed it on watch for potential delisting, citing the possibility of it failing.
Shares in rivals slipped further after sharp falls on Monday.
Acom Co, 37 percent owned by Mitsubishi UFJ Financial Group and considered the strongest among Japan's top four consumer lenders, fell 1.3 percent. Unaffiliated Aiful Corp slid 3.3 percent, while Promise, 20 percent owned by Sumitomo Mitsui Financial Group, declined 0.9 percent.
Shinsei Bank, Japan's first foreign-owned lender, operates two consumer finance units under the brands Aplus and Lake, which, unlike its competitors, it funds with deposits.
By affiliating with banks, consumer lenders have secured a steady funding source, according to Takehito Yamanaka, senior analyst at MF Global FXA Securities
"Takefuji did not have the money to make new loans, but others are not in such a situation," he said.
BONANZA OVER
Consumer finance companies emerged as big lenders in the 1990s as Japan's economy tanked and commercial banks reined in credit. Able to borrow at very low rates, they charged interest of nearly 30 percent, allowing them to absorb high default rates on uncollateralised loans. Reimbursements and the state intervention ended the bonanza.
"Lenders may need to boost their reserves and impairment of their capital as a result of any increases in demands for interest refunds," said Deutsche Securities' Shimizu.
"Aiful has a relatively thin equity capital cushion compared with Acom and Promise. Promise is weaker than Acom but the market has seen that SMFG could help the firm raise funds," he added.
Late last year, Aiful staved off bankruptcy by convincing its creditors to defer about 280 billion yen in bank loan principal payments.
Starting as a small money lender in 1966, Takefuji grew to become Japan's biggest consumer finance company. Its founder Yasuo Takei was ranked by Forbes as Japan's second-richest person in 2005, worth $5.6 billion.
But a series of scandals over heavy-handed debt collection and a conviction for Takei in 2004 for ordering wiretaps on journalists, marked the beginning of a state crackdown on a business seen by industry critics as little better than loan sharking. Takei died in 2006.
Japan's consumer finance squeeze culminated this year with a state-engineered credit crunch. In June, the government capped interest rates at 20 percent, down from 29.2 percent, and limited the amount individuals can borrow to one-third of their income.
Japan's banking minister Shozaburo Jimi said on Tuesday his government would study the impact that interest reimbursements were having on consumer lenders, but didn't comment on whether that could mean a relaxing of regulations.
Takefuji had 433.6 billion yen ($5.2 billion) in liabilities as of the end of June, research firm Tokyo Shoko Research said, including about 135 billion yen in bonds.
No comments:
Post a Comment