Mizuho to take $1.3B hit from Mycal

Mizuho will write off $7.1 billion in loans the first half of the year, including half its debts to failed supmarket chain Mycal

By CNN's Alex Frew McMillan in Hong Kong

TOKYO, Japan (CNN) -- Mizuho Holdings expects to take a $1.3 billion hit from the failure of retailer Mycal Corp.

That will push the largest bank in the world into the red for the first half of the year, Mizuho now predicts.

Mycal became one of the largest business failures in Japan's history when it filed for court protection from its creditors on Friday, giving up on three years' attempts at restructuring.

Mizuho's Dai-Ichi Kangyo Bank subsidiary will bear the brunt of the collapse, as Mycal's main lender.

Mycal's failure boosted hopes Japan's banks are finally getting serious about handling their bad-loan problem. But the direct fallout lands squarely on Mizuho, whose banks loaned the company a total of 316 billion yen ($2.7 billion).

Half Mycal's loans are bad

Around half the loans will have to be written off, the bank said over the weekend. That prompted it to reduce its earnings forecast for the year.

Mizuho is also tightening its reins on other borrowers in bad shape. In the first half of the year, it will write off a total of 845 billion yen ($7.1 billion) in bad loans, to Mycal and other deadbeat customers.

That, the bank expects, will force it to a 260 billion yen net loss through the end of September. It had forecast a net profit of 90 billion yen. The same time last year, it made 155 billion yen.

Overall, Mizuho now expects to make 40 billion yen this business year, which runs through March 2002. It had previously forecast a gain of 270 billion yen.

Mizuho is also battling the slump in Japanese stocks, which are hurting its huge shareholdings, and a deterioration in profits at its Yasuda Trust & Banking Co. subsidiary.

The bank group, the world's largest by assets, also includes Fuji Bank and the Industrial Bank of Japan. All the banks will be formally integrated into the Mizuho group by April 2002.

The earnings revision hit Mizuho's stock hard. It was trading down 6.2 percent at 486,000 yen in afternoon trade, having rallied after news of Mycal's failure Friday.

Mycal stock was frozen at 23 yen, down from 53 yen when trading was also halted on Friday.

Mycal chatting with Wal-Mart again

Mycal is Japan's fourth-largest supermarket chain. It filed for court protection Friday under a debt load of 1.4 trillion yen ($11.7 billion), and 1.7 trillion yen for its whole group.

That ranks it in the top five corporate failures in Japan's history and evokes memories of department-store chain Sogo's failure in July 2000.

Dai-Ichi Kangyo reportedly pulled its support, facing pressure both from Mizuho and given the tumble in stock prices after the U.S. terrorist attacks.

Mycal has asked the world's largest retailer, Arkansas-based Wal-Mart Corp., to come back to the table to discuss a possible tie between the two companies.

Mycal wants to discuss cooperating on store operation and supplying merchandise, the Nihon Keizai Shimbun reports.

Talks were put on hold when Mycal filed for bankruptcy. Though that lets other companies offer assistance, Mycal will give preference to Wal-Mart,.

Wal-Mart is looking to buy about 20 of Mycal's profitable stores as an entryway into the Japanese market.

Wal-Mart will be even keener to look at Mycal's operations, now that bankruptcy means Mycal's debt load will likely be reduced.