/www.bloomberg.com/ By Mikako Nakajima and Taizo Hirose
Tokyo, Oct. 23 (Bloomberg) -- Heizo Takenaka, Japan's top banking regulator, said he won't back down from a bad-loan plan that could push some companies into bankruptcy, snubbing opponents in the ruling party who want a more gradual approach.
Takenaka, who has said ``no company is too big to fail,'' faces opposition from Liberal Democratic Party members. Though Prime Minister Junichiro Koizumi has said he backs the academic- turned-minister's plan to accelerate disposal of more than $420 billion of bad loans, Finance Minister Masajuro Shiokawa described the proposals as ``too sudden.''
The clash between the ruling party and Takenaka, appointed after his predecessor balked at declaring banks in need of rescue, may derail efforts to revive an economy hurt by three recessions in a decade. The conflict may test Koizumi's resolve to stand by a plan that would cause hardships for the banks and for companies that support some ruling party politicians.
``There's a great deal skepticism they won't choose a hard landing, and I think it's justified,'' said Thomas O'Malley, a senior portfolio manager at Barclays Global Investors, which oversees about $750 billion. ``It's almost at the point where Japan is damned if they do and damned if they don't.''
Shares of Mizuho Holdings Inc., the world's biggest bank by assets, fell as much as 10 percent to 157,000 yen and Japan's six other largest lenders also declined as of 12:48 p.m. on the Tokyo Stock Exchange.
Ruling party lawmakers are concerned Takenaka, an economics professor brought into government by Koizumi last year, will force banks to boost provisions, eroding bank capital enough to require taxpayer-funded bailout of banks for the third time in four years.
Ending the Mirage
``Takenaka is trying to end the mirage that these sort of banks are going concerns,'' said Nick Demopoulos, the head of London sales trading at WestLB Panmure Ltd. in the U.K. ``LDP leaders prefer to continue to perpetuate this myth and not rock the boat, not realizing that it is sinking.''
Hideyuki Aizawa, the head of the Liberal Democratic Party's anti-deflation panel, yesterday described Takenaka's draft plan as ``radical.'' Party opposition to the plan led to its cancellation later in the day.
Still, Shiokawa, who was briefed yesterday by Takenaka, said Japan ``eventually'' will have to take steps the top bank regulator has proposed. He also said banks haven't been stringent enough in assessing the quality of their loans and weigh future tax credits too heavily when calculating capital.
Deferred Tax Credit
Deferred tax assets -- the right to reduce future tax payments for current losses -- account for about half of the top category of capital at Japan's biggest lenders.
The tax credit on loan write-offs and provisioning can be carried for five years as part of bank capital, though deferred tax assets can't be used to pay back creditors in cases of bank failure. Takanaka's plan will cut that period to one year, the Nihon Keizai newspaper said yesterday, without citing anyone.
``The last thing banks want to see is the government changing a rule on deferred tax assets,'' said Mitsuhiro Shima, who helps manage 500 billion yen at T&D Asset Management Co. ``In other words, that's what Takenaka is aiming for because he wants to put more banks under state control to make them better.''
Takenaka said regulators will release a final plan on bad- loan disposals as part of a larger package of government policies designed to help the economy by the end of the month.