Prospects of Shinsei Bank Repaying Funds Remain Unclear

Tokyo, Oct. 23 (Jiji Press)--The prospects remain unclear whether
Shinsei Bank <8303> can repay public funds 10 years after the collapse of its predecessor, Long-Term Credit Bank of Japan.

In a banking system crisis that effectively ended a few years ago,
Japanese financial institutions large and small accepted public funds for
capital replenishment.
Many have already returned the funds to state coffers, while a
handful, including Shinsei Bank, has yet to complete the task.
For Shinsei Bank, the prospects are dim because the bank's earnings
remain lackluster and its stock price has fallen steeply.
The Japanese government took temporary control of LTCB and spent a
total of 8 trillion yen in public funds on the bank, much of which was used
to clean up excess debt over assets at the failed lender and cover
additional losses that resulted from bad asset disposal implemented after
the collapse. Of the total, 3.6 trillion yen has so far been lost.
Of the 8 trillion yen, 416.6 billion yen was used to replenish
capital. More than half of it, or 216.9 billion yen, injected in return for
preferred shares, has yet to be repaid.
The government has already converted the preferred shares into
common stock. It aims to sell the shares at 745 yen per share for a total of
350 billion yen to turn a profit.
But Shinsei Bank's share price has fallen far below that level. On
the Tokyo Stock Exchange Thursday, Shinsei Bank closed at 192 yen per share,
just shy of its lifetime low of 185 yen reached the same day.
Aozora Bank <8304> faces a similar difficulty mainly because of its
low stock price. Its predecessor, Nippon Credit Bank, collapsed and was
placed under state control in December 1998, two months after the failure of
LTCB. Of the public funds spent on NCB, 179.4 billion yen remains to be
repaid.
Behind the weakness of the two banks' shares is a lack of clear
signs of business recovery. Both Shinsei Bank and Aozora Bank expect to
report consolidated net losses for April-September.
"The two banks cannot break the shackles of sluggish stock prices
until they find stable sources of profits," said Hironari Nozaki, analyst at
Nikko Citigroup Ltd.
In a bid to bolster its retail services, Shinsei Bank acquired GE
Consumer Finance Co., a Japanese unit of U.S. conglomerate General Electric
Co., last month for 580 billion yen.
But it will not be easy for the bank to benefit from the investment
anytime soon because the consumer finance industry faces further tightening
of industry regulations, analysts said.