28 October 2002, 09:16  Japan's Koizumi Says He Backs Takenaka Plan That Banks Oppose

/www.bloomberg.com/ By Yoshiko Matsushita
Tokyo, Oct. 28 (Bloomberg) -- Japan's Prime Minister Junichiro Koizumi said he will stick to a bad-loan plan that Mizuho Holdings Inc. and other lenders oppose because they are concerned it will put them under state control.
``The plan to accelerate write-offs of bad debt will be in line'' with that proposed last week by Minister for Financial Services Heizo Takenaka, said Koizumi, who was attending a meeting with 21 Asia-Pacific leaders in Los Cabos, Mexico.
Shares in Mizuho and other lenders dropped as Koizumi said he'll outline the plan this week. Victories by members of ruling coalition parties in five of seven elections yesterday may also strengthen Koizumi's hand after lawmakers last week blocked a draft version of the plan.
``Using taxpayers' money to bail out some banks is inevitable at this point,'' said Minoru Kikuchi, who helps manage $4.1 billion in Japanese stocks at Citigroup Asset Management. ``The government must provide safety-net measures'' to lessen the pain from bankruptcies and unemployment.
Japanese bonds rose following the election results on expectations Takenaka's plan would require less government spending than proposals by some lawmakers for a ``safety net'' aimed at softening the effects of reform on struggling companies.
The No. 243 bond, which carries a 1.1 percent coupon and matures in 2012, rose 0.314 to 100.580 at 11:05 a.m. in Tokyo. Its yield fell 3.5 basis points to 1.035 percent. A basis point is 0.01 percentage point. Ten-year bond futures for December delivery rose 0.25 to 141.65.
Shares Fall
Shares of Mizuho and other large banks fell as Takenaka's plan would force them to increase provisioning and write-offs, denting profit and increasing the risk of a government takeover.
Mizuho, the world's biggest bank by assets, fell as much as 3.7 percent to 157,000 yen and ended the morning session 2.5 percent lower at 159,000 yen as of 11 a.m. on the Tokyo Stock Exchange.
Takenaka met this morning for the third time in five days with heads of Japan's seven biggest banks to explain his plan to speed write-offs of bad loans. Officials and bankers declined to comment on the content of their discussions following the meeting.
Takenaka has urged changing rules on how banks account for their capital, which could trigger the nationalization of some lenders. That concern has sparked opposition from politicians and bankers.
Japan's seven biggest banks last week issued a joint statement telling the newly appointed regulator to back down on proposals for cleaning up bad loans.
``They are taking away the freedom to manage our own companies,'' Terunobu Maeda, president of Mizuho, said Friday. ``We intend to proceed with reform of our businesses, but with the government intervening, it's only demoralizing private-sector companies.''
Supporting Companies
Some leading politicians said Koizumi must focus on companies hurt by banking reform.
The government should increase spending before ``jumping on to a surgical operation'' to resolve bad loans, senior Liberal Democratic Party official Hideyuki Aizawa told Japanese television on the weekend.
The government will take all necessary steps to support small companies and employment to offset the plan to speed up bad-loan write-offs, which will drive companies bankrupt, Koizumi said.
Japan's seven biggest banks booked a combined loss of 4.07 trillion yen in the year to March as failed companies, such as Mycal Corp. and Aoki Corp., defaulted on debt. Banks made loans to large retailers and construction companies during the asset inflation in land and stock prices of the late 1980s and early 1990s.
Advocates of bank reform say that as long as the bad debt persists, it will inhibit banks from making new loans to revive the economy. Banks haven't increased lending for six years, which has starved companies of the fresh money needed to grow.

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