Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.comment From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Japanese banks form company to liquidate bad loans of '80s Date: Sat, 31 Oct 92 14:00:15 EST Message-ID: \SE C;COMMENTARY;MONEY \SS (WS) \HD Japanese banks form company to liquidate bad loans of '80s \BY ASSOCIATED PRESS \DT TOKYO TOKYO (AP) - The Japanese banking industry announced plans yesterday to start its own company to liquidate hundreds of billions of dollars in bad loans made during the speculative boom of the 1980s. But analysts and industry insiders said they doubt a rescue funded only by the banks themselves would end the financial crisis. The debt mess, they said, will eventually require government intervention. "The banks had to come up with something," said Richard C. Koo, a senior economist at the Nomura Research Institute. "They have to do something before they beg the government for help." The loans were made during the late 1980s, when stock and real estate prices soared and lenders accepted inflated assets as collateral. Prices have since plunged, bankrupting thousands of borrowers and endangering the health of banks and other financial institutions. The trouble into which Japanese banks have fallen is similar to the calamity in the U.S. savings and loan industry. But unlike the Resolution Trust Corp., the U.S. government agency formed to rescue the S&Ls, the Japanese corporation will get its capital only from other banks. According to an outline of the debt-purchasing plan announced by the president of Mitsubishi Bank, Tsuneo Wakai, the new corporation would buy real estate used as collateral for bad loans, enabling banks to write off their losses and shrink bad debts. Bankers say the plan is needed because they have been unable to sell the collateral on the bearish property market and thus cannot take write-offs. Finance Minister Tsutomu Hata said Friday that the government would adapt tax rules to help banks write off losses caused by bad debts. Mr. Wakai said banks would contribute to the company's start-up capital of $48.8 million and then lend it money to buy the collateral from themselves. The plan announced yesterday provided no details on how many banks would participate and how much debt they would eventually sell, raising doubts about the financial feasibility of the venture. "This has never been done before. We won't know until we give it a try," Mr. Wakai said. Japan's minimal disclosure laws and its narrow official definition of nonperforming loans have tended to obscure the actual severity of the financial crisis. Industry analysts' estimates of bad loans average about $244 billion. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM