Japan’s 11th-Largest Bank to Be Dissolved

In the largest bank failure in Japan related to bad bank loans, Hokkaido Takushoku Bank Ltd. will be dissolved, with its operations transferred to a regional bank, it was announced today.

The virtual bankruptcy of troubled Hokkaido Takushoku was anticipated, although earlier attempts to bail it out and merge its assets had failed. The bank is headquartered in Japan’s northern island of Hokkaido and is Japan’s 11th-largest bank.

News of Hokkaido Takushoku’s dissolution sent stocks soaring in morning trading early today on the Tokyo stock exchange, where investors took the move as an indication that Japanese authorities were acting to address the country’s severe banking industry problems.

The Nikkei-225 ended the morning session up 944.85 points, or 6.3%, to 16,027.37, the highest since Nov. 6. Bank shares led the morning surge in stock prices. The Bank of Tokyo Mitsubishi rose 11.7%, Sumitomo Bank rose 15.5%, and Sanwa Bank rose 17.8%.

Non-performing loans at Japanese banks are officially estimated to total $240 billion, with some private analysts saying the real total could be twice that much. Any signs of government willingness to take more aggressive action to solve the bad-loan problem is generally seen by investors and analysts as positive for the Japanese economy.

Finance Minister Hiroshi Mitsuzuka said in Tokyo that the Bank of Japan will provide unsecured loans to help the transfer of Hokkaido Takushoku’s main business to North Pacific Bank Ltd., a regional bank in Hokkaido. He indicated that depositors will be protected, but the likely effect on shareholders was not immediately clear.

“We will give utmost consideration not to hinder transactions involving depositors and sound borrowers,” Mitsuzuka said. The chairman, president and all other board members of Hokkaido Takushoku will step down.

Sadamasa Kawatani, Hokkaido Takushoku’s president, told a news conference that his bank would transfer its branches in Hokkaido to North Pacific but was still studying what to do with its branches in Tokyo and other parts of Japan.

“In addition to lower credit ratings and weak stock prices, which reflected recent worries about the credit-worthiness of our bank, the recent collapse of financial firms has made it increasingly difficult for us to raise money in the short-term money market,” the bank said in a statement.

“We had to reach a judgment that we would not be able to continue our operations.”

The bank also said Kawatani and other board members will resign at an appropriate time.

Hokkaido Takushoku, which has assets of $76 billion and bad loans of about $7.5 billion, announced in September that a planned merger with Hokkaido Bank Ltd. would be postponed. That plan, announced in April, called for the merger of the two banks in Hokkaido to lead to reductions in their work forces by 25% and reductions in costs by 30%. It fell through because Hokkaido Bank was reluctant to get involved with Hokkaido Takushoku’s bad loans.

Hiroshi Yamamura, chief economist at NLI Research Institute in Tokyo, said falling stock prices and growing concerns about Japan’s economy in recent weeks pressured authorities to take action on Hokkaido Takushoku without waiting longer.

Taxpayers’ money will be used not to write off bad loans but “to rescue depositors, which is very important,” Yamamura said. “There may be other banks to follow [this precedent], and Takushoku may become a case study. . . . The depositors will be rescued and [the interests of] other clients will be guaranteed, so this is a good thing to happen for financial markets, consumers and the country. . . . I think this is a correct decision.”

Bank of Japan Gov. Yasuo Matsushita told a separate Tokyo news conference that authorities are not sure whether Hokkaido Takushoku’s liabilities exceed its assets. Hokkaido Takushoku will continue normal operations during the transition, and the Bank of Japan will provide funds if necessary, he said.

Matsushita said he did not expect Hokkaido Takushoku’s dissolution to have any negative international repercussions.

Sapporo-based North Pacific Bank is the third-largest bank in Hokkaido, after Hokkaido Takushoku and Hokkaido Bank. It has 122 branches and 1,947 employees, with total assets of $14.4 billion.

Yasuda Trust & Banking Co. and Hokkaido Takushoku are the largest shareholders in North Pacific, with 5% each. A 4% stake is held by the Industrial Bank of Japan.

Trading in shares of Hokkaido Takushoku and North Pacific were suspended today on the Tokyo stock exchange.

It is expected that North Pacific will need to raise additional capital in order to be able to absorb Hokkaido Takushoku’s operations, Matsushita said.

Hokkaido Takushoku announced a restructuring plan in September that included writing off $2.8 billion in bad loans and raising $1.2 billion in capital from creditor banks and insurers.

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Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.