Japan taking over Ashikaga Bank
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Koizumi said nationalizing Ashikaga was "the responsible move".
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TOKYO, Japan -- The Japanese government will temporarily nationalize troubled regional bank Ashikaga Financial Group at a cost in public funds estimated at 1 trillion yen ($9.1 billion).
The government decided on the action at the weekend, after Ashikaga fell into insolvency. Existing shareholders will lose their entire investment, though about 80 billion yen in subordinated loans and bonds will be guaranteed.
UBS Japan analyst Graeme Knowd told CNN Monday that several more regional banks in Japan were "probably in a similar position" to Ashikaga.
He said the government was now turning its attention to the weaker banks after an improved performance by the big Japanese banks.
That view was echoed in a research report Monday by Barclays Capital, which noted that this shift in focus "will dampen any excitement" about the broader Japanese economy.
Last week Japan's big four banks reported they were on track to post their first annual profits in three years.
In first half earnings, Mizuho Financial Group reported a net profit of 255 billion yen to September 30, while the comparable net profit figures for the other three were UFJ Holdings 180 billion yen, Sumitomo Mitsui Financial Group 140 billion yen and Mitsubishi Tokyo Financial Group 300 billion yen.
Excluding Resona Bank, which was bailed out by the government in June, the top six banks reported a combined net profit of 944 billion yen ($8.64 billion) for the six months to September.
On Saturday, at an emergency meeting convened by Prime Minister Junichiro Koizumi, top financial and government advisers approved the decision to purchase all of Ashikaga's stock to nationalize the bank.
The decision is a sign that the government is pressing ahead with efforts to clean up the debt-laden banking system and is willing to let smaller, weak lenders fail as it forces bankers to evaluate their assets more strictly.
"We decided to nationalize (Ashikaga) temporarily in order to prevent confusion," Koizumi told reporters after the meeting. "It was the responsible move."
Ashikaga's books showed the bank's debts exceeded its assets by $857 million as of September 30, according to the Financial Services Agency, Japan's top banking watchdog.
Bank of Japan Governor Toshihiko Fukui told reporters that the central bank will provide special loans to Ashikaga when necessary.
The bank primarily serves a semi-industrial community north of Tokyo.
Japan's banking system has suffered under the weight of bad loans since the real estate and stock markets crashed in the early 1990s.
The health of larger banks has improved somewhat in the past year, as shown by the major banks posting stronger first-half profits. They mainly cited rising stock prices and a tax rebate for their good fortune, however, and analysts say regional banks remain fragile.
Shares in Ashikaga Financial Group were down by the maximum permissible at midday Monday, ask-only at 51 yen. Other banks were mainly lower, though Mizuho was about 0.35 percent higher at 287,000 yen.
The broader market, measured by the Nikkei 225 average, was up about 0.7 percent to 10,177.84.
Copyright 2003 CNN. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Associated Press contributed to this report.
