It’s almost like old times, when Japanese financial institutions were crashing like sumo wrestlers on a bad day.
For keen observers of Japan’s troubled consumer finance sector, the only surprise about a Monday report in Japan’s Nikkei newspaper that lender Takefuji could file for bankruptcy protection, is that it took this long for another domino to fall.
Defiant until the last, Takefuji’s only statement on Monday, after its website crashed and all its spokesmen were unavailable, was to deny it would file for bankruptcy, saying only that it was instead “considering and implementing various measures right now to revitalise” its business.
As Reuters reports:
Japan’s Takefuji Corp is preparing to file for bankruptcy with $5.2 billion in debts, media said, the biggest consumer lender to fail under the weight of court-ordered interest repayments and tighter lending rules.
Takefuji, which has been considered at risk for failure because it doesn’t have the financial backing of any of Japan’s big banks, is making final preparations to file for bankruptcy protection, the Nikkei newspaper and other Japanese media said.
Once Japan’s largest moneylender, Takefuji said it had not decided to file for bankruptcy, but would not comment on whether it was considering such a move. “It is untrue that we made such a decision [to file for bankruptcy] as some media have reported,” it said in a statement.
Adding to the bemusement of onlookers, the Tokyo Stock Exchange decided to resume trading in Takefuji’s shares in the last nine minutes of trading, at 2:51pm local time, after suspending the stock early in the day — and warning on its website that the shares were at risk of being delisted.
Needless to say, there was not much action in the shares, which have plunged to Y121 from Y174 on Friday and — yes, that’s right — from a peak of Y19,300 nine months after it listed in December 1998.
News of Takefuji’s demise – or rather, its search for ‘revitalisation measures’, is, according to one Tokyo-based broker, “hardly a surprise and may actually provide something of a fillip for the surviving consumer lenders — following, as it does, news of marked improvement in August ‘kabarai‘, or excess interest claim, numbers for consumer finance companies”.
In fact, some analysts believe that the once-booming sector, amid consolidation and a slow but steady reduction of debts, could be heading for some improvement, if not a rebound, with some brokers suggesting certain companies could even be a buy. Among them, Credit Saison and Aeon Credit have been “the most aggressive in reducing balance sheet risk”, according to one local analyst.
The draconian new lending limits, which kicked in a few months ago and are being partly blamed for the problems facing Takefuji and others in the sector, could ultimately help encourage a return of confidence in the sector, noted another observer.
Takefuji’s travails follow the collapse late last year of another big lender, Aiful. We noted back then that Japan’s consumer lenders were badly hit by a change to regulations that lowered maximum interest rates that could be charged on consumer loans to 18 per cent from the previous 29 per cent — and restricted the amount a single borrower could borrow to a third of their annual income.
That followed a Supreme Court ruling that judged consumer lenders had charged excess interest. Many lenders have since been hit by lawsuits from consumers forcing them to repay the past high interest charges now deemed illegal.
The result has been massive consolidation, with branch and business closures and thousands of lay-offs in the past year. Adding to its woes, the industry faces more than Y4,400bn in potential refund bills, amid a surge in lawsuits claiming overcharging of interest fees, according to figures from the Japan Financial Services Association.
While some of the top Japanese consumer lenders such as Promise and Acom tied up with big Japanese banks, some of their western — mainly US — partners or owners, such as General Electric, which sold its consumer finance business to Shinsei Bank last year, and Citigroup, now winding down its consumer lending operations, have exited the market.
The problem for Takefuji, Mitsushige Akino, a fund manager with Ichiyoshi in Tokyo, told Bloomberg, is that it:
… delayed shedding its skin, while other consumer lenders changed their capital structure with support from megabanks … Takefuji’s financial problems differentiate it from rivals.
If indeed that’s true, we’re assuming Akino’s choice of a reptilian metaphor also applies only to stricken Takefuji.
Related links:
Japan’s moneylenders – Lex
Baleful Aiful – FT Alphaville
Merrill in legal tangle over Takefuji deal - FT