1:29 AM
By Taiga Uranaka and Taro Fuse
TOKYO | Tue Sep 28, 2010 3:39am EDT
TOKYO (Reuters) - Japan's Takefuji Corp (8564.T) will file for bankruptcy on Tuesday owing $5.2 billion, sources said, making it the biggest consumer lender to fail since courts ordered them to repay borrowers for excessive interest charges.
Takefuji, which has been considered at risk of failing as it lacks the financial backing of a big Japanese bank, will ask the courts to protect it from creditors, two sources close to the matter told Reuters on condition they were not identified.
Takefuji and other consumer lenders have struggled to survive after the Japanese courts ruled in 2006 that they had charged too much interest and had to repay borrowers. A recent government cap on interest rates has further hobbled the industry.
The ruling on interest repayments has already claimed several smaller casualties among consumer lenders. The fear now for Takefuji's rivals is that its failure will spark a run of claims by their borrowers worried that they will not get the refund the court ruling promised.
Analysts said Takefuji's problems posed little wider threat to the overall system, however, because depositor's funds were not at risk.
"Takefuji has raised most of its capital in bonds, which are largely held by foreign investors, mostly hedge funds, so the bankruptcy would not have a big impact on the financial system," Deutsche Securities credit analyst Junichi Shimizu said.
UNDER PRESSURE
A Takefuji spokesman declined to comment. The company on Monday said that it had not decided to file for bankruptcy.
Shares of Takefuji, which have fallen about 56 percent this year, did not trade for a second day on Tuesday on a glut of sell orders. The Tokyo Stock Exchange, which suspended trade of the consumer lender's shares for most of Monday, placed it on watch for potential delisting, citing the possibility of it failing.
Shares in rivals slipped further after sharp falls on Monday.
Acom Co (8572.T), 37 percent owned by Mitsubishi UFJ Financial Group (8306.T) and considered the strongest among Japan's top four consumer lenders, fell 1.3 percent. Unaffiliated Aiful Corp (8515.T) slid 3.3 percent, while Promise (8574.T), 20 percent owned by Sumitomo Mitsui Financial Group (8316.T), declined 0.9 percent.
Shinsei Bank (8303.T), Japan's first foreign-owned lender, operates two consumer finance units under the brands Aplus and Lake, which, unlike its competitors, it funds with deposits.
By affiliating with banks, consumer lenders have secured a steady funding source, according to Takehito Yamanaka, senior analyst at MF Global FXA Securities
"Takefuji did not have the money to make new loans, but others are not in such a situation," he said.
BONANZA OVER
Posts
