Experts scoff at plan to rebuild ShinGinko

ShinGinko Tokyo's reconstruction plan based on downsizing its operations could actually end up putting the bank deeper in the hole despite an imminent 40-billion-yen bailout package, experts said.

They said the bank's plan would put it into direct competition with major financial institutions with far more experience, and that ShinGinko Tokyo's bad loan problem could worsen if it can attract only high-risk borrowers.

"The bank says it will make use of the operational know-how it has accumulated," said Shinjiro Takagi, who served as chairman of the decision-making committee of the former Industrial Revitalization Corp., a government-backed corporate turnaround entity.

"But the bank has fallen into difficulties because it failed to acquire such expertise."

The Tokyo metropolitan assembly's plenary session today is expected to pass a bill to inject 40 billion yen of taxpayers' money into the struggling bank.

The Tokyo metropolitan government invested 100 billion yen of public funds as part of the initial capital of the bank when it was set up in 2004 under the initiative of Governor Shintaro Ishihara.

The bank, now saddled with mountains of bad loans, plans to reduce its work force to 120 employees, down from 450 as of March 1, close four of five branch offices and move the head office to the remaining branch in Shinjuku Ward.

To further reduce the size of its operations, ShinGinko Tokyo will slash the amount of outstanding deposits, which totaled 428 billion yen at the end of September 2007, to 20 billion yen.

The bank's stated goal is to post a net operating profit of 800 million yen in fiscal 2011, which would be quite a turnaround from the net operating loss of 7 billion yen projected for fiscal 2008.

Standard & Poor's credit rating agency on March 19 downgraded ShinGinko Tokyo's long-term rating by two notches from BBB+ to BBB-, the lowest grade given to companies considered suitable for investment.

ShinGinko Tokyo is ranked third from the bottom among 79 domestic financial institutions rated by S&P.

The agency said the downgrade was based on its judgment that the bank will face difficulties achieving its goals under the reconstruction plan.

Ryoji Yoshizawa, an S&P analyst, said the bank's most unrealistic target is increasing gross operating profit to 3.4 billion yen in fiscal 2011 from 1.5 billion yen in fiscal 2008--despite all of the downsizing.

"High-risk lending and investments will be inevitable to achieve the profit target, but taking those steps will become more difficult when the economy slows down," he said.

Masaru Takagi, a professor at Meiji University's graduate school and an economics commentator, said the bank's plan to withdraw from unsecured, nonguaranteed loan operations will undermine its raison d'etre.

The bank had differentiated itself from its rivals by offering such loans mainly to cash-strapped small and midsized companies. Its reconstruction plan calls for a shift in focus to guaranteed loans and investments in venture businesses, which will put it in fierce competition with major financial institutions.

"The bank lacks expertise (in those operations), will charge high interest rates and plans to cut its work force. It will be able to attract only high-risk borrowers struggling under excessive debts and refused by major lenders," Takagi said, adding that he expects bad loans to continue snowballing at the bank.(IHT/Asahi: March 28,2008)