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Japan to outline public cash for banks
TOKYO, Japan -- Japan's government will set up a framework in December for injecting public money into the banks, according to a report. The government is also planning to set up a new system to monitor the banks and to beef up regulation by the Financial Services Agency (FSA), the Nihon Keizai Shimbun reports on Thursday. New Financial Services Minister Heizo Takenaka is due to outline his plans for putting money into the banks and cracking down on bad loans on Friday. The Nikkei, citing a timetable for reforms that it has obtained, says those plans call on the FSA to create new guidelines for when the government would pump money into ailing banks. Japan's Big Four banks said on Monday they will take a hit of 2.6 trillion yen ($21.6 billion) to write off loans this year. But some say they should do more to tackle a bad-loan tally conservatively pegged at 52 trillion yen ($424 billion). (Full story) Rules on switching stock easedThe government received preferred stock in most major banks after its last bailout of the banks, in 1998 and 1999. The new FSA rules would address when the government could switch that preferred stock into common equity. At the moment, the FSA allows for that move only if a bank is close to collapse. But the new rules would ease those criteria, calling for stock conversion if a bank misses profit forecasts for several years, for instance. The government is also prepping a framework for bailing out banks, including injecting public money into banks struggling to meet capital requirements. Such a move would likely also involve a management change at the banks and would also be unpopular with the public, because the last bailout failed to achieve much. Push banks to carve out problemThe ruling coalition is also likely to push banks to carve out their problem loans from healthy ones and transfer them into special accounts. UFJ Holdings, the most troubled of the Big Four megabanks, said in announcing earnings on Monday that it is transferring 1 trillion yen in problem loans to a new subsidiary that it is setting up, which will look for outside investors. (Full story) Takenaka will also likely announce a framework for the government to make temporary investments to shore up a bank's capital base so that it can make aggressive loan writeoffs in the future. The FSA will likely see its regulatory capabilities expanded, giving the watchdog the authority to order banks to make corrective steps if their capital ratios fall to problem levels. Bank stocks are gaining ahead of Friday's announcement from Takenaka, with Mizuho Holdings up 3.05 percent at midday on Thursday, to 135,000 yen. UFJ Holdings is up 2.42 percent to 127,000 yen, while Mitsubishi Tokyo Financial Group is up 1.67 percent to 732,000 yen. It is the central Bank of Japan's shares that are suffering, down 0.2 percent to 49,900 yen, its lowest level since 1986. The stock is very thinly traded, however, with only a small amount available to the public. The BOJ is due to start buying stock from the banks on Friday to help them unwind their cross-holdings, a move investors fear will hurt the BOJ's financial standing.
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