Japan's biggest corporate bankruptcy

Steve Perry sperry at usinternet.com
Mon Oct 9 23:09:53 PDT 2000

Monday October 9, 9:10 am Eastern Time Chiyoda Life falls in Japan's biggest bankruptcy

By Miki Shimogori

TOKYO, Oct 9 (Reuters) - In Japan's biggest corporate bankruptcy, Chiyoda Mutual Life Insurance Co said on Monday it had filed for court protection from creditors under new fast-track laws for financial firms.

The failure of the nation's 12th largest life insurer, with total debt of 2.94 trillion yen ($26.95 billion), should heat up a survival battle in the hard-hit industry, already reeling from a triple blow of falling premium income, low investment returns and weak share prices.

Those still in weak financial health will have to seek mergers or rescue takeovers amid the increasing competition that has developed since 1998, when deregulation opened the way for international insurers to enter the domestic market.

Chiyoda's failure, which came as corporate bankruptcies have been soaring in the past months, could cloud the economic climate by hurting private spending, a core engine for growth.

``The Japanese economy has been putting its worst behind it, but a recovery in private-sector demand is not yet a sure thing,'' said DKB Research Institute chief economist Akio Makabe. ``Chiyoda's failure will hurt people's confidence and pour cold water on the much-needed recovery in private-sector demand.''

The Chiyoda move could also hurt sentiment in Japan's share market when it opens on Tuesday after a holiday on Monday.

Chiyoda Mutual President Reiji Yoneyama told a news conference the life insurer had filed for protection with the Tokyo District Court. That would make Chiyoda the fifth life insurer to fail in Japan's post-war history.

Yoneyama also said he has submitted his resignation.

The 96-year-old Chiyoda Mutual was the first institution to seek court protection under the new laws, enacted in June with the aim of dealing with troubled financial institutions.

Left with hefty non-performing assets after Japan's late 1980s assets-price bubble burst, Chiyoda Mutual has been plagued by worries about its financial health and hit by a rush of insurance policy cancellations.

Its failure had little sustained impact on the yen in Asian trading on Monday.

``This isn't news that came as a total surprise, as Chiyoda has long been thought to be in weak health, but news of its actual failure could add caution, especially among foreigners, over potential risks in their Japanese asset holdings,'' said Masaaki Higashida, deputy general manager at Nomura Securities.

Higashida said the benchmark Nikkei average of 225 leading shares could dip as low as 15,550 this week. The Nikkei ended down 0.65 percent at 15,994.24 on Friday.


In a move that echoed its past interventionist policies, Japan's government had urged banks on Friday to press on with efforts to save the mid-sized Chiyoda after Tokai Bank clouded its future by toughening conditions for a bailout.

Tokai, which has spearheaded rescue efforts for Chiyoda Life, told the ailing insurer it must tie up with a foreign firm to get any financial help. The bank had toughened its stance while it concentrated on a planned union next April with Sanwa Bank and Toyo Trust & Banking.

Chiyoda had been in talks with several foreign firms including Germany's Allianz group .

``We have tried to form an alliance with several foreign supporters, but we have judged that such an alliance would be difficult,'' Yoneyama said.

In a statement released on Monday, Tokai Bank President Hideo Ogasawara said: ``We will cooperate to help implement a rehabilitation program the insurer will draw up in the coming days within the scope of our capacity.''

Chiyoda expressed hope it would find foreign supporters after the court filing, saying it had recently held talks with American International Group (NYSE:AIG - news) (AIG) to seek its financial help under the court-led rehabilitation process.

Chiyoda asked Tokai in June for a capital infusion after its solvency margin ratio -- a key gauge of its ability to meet claims -- fell to 263.1 percent, considered dangerously near to the 200-percent warning level.

Analysts say Chiyoda's balance sheet has weakened since it sought help in February and unveiled restructuring plans including 800 job cuts and closure of four-fifths of its branches.

Japan's Financial Services Agency (FSA) estimated that Chiyoda, which held assets of some 3.5 trillion yen as of the end of March, had negative net worth of some 34.3 billion yen at the end of September.

FSA Commissioner Masaharu Hino said on Monday no other insurers were in a financial crisis or faced a negative net worth at the end of September, but few analysts believed the industry's woes were over.

An FSA inspection showed last month that 19 life insurers held loans as of March with a serious risk of recovery of 233 billion yen, four times the amount declared by the firms.

Chiyoda said policyholders will be largely protected by current reserves at Chiyoda and an industry safety net, but some insurance payouts could be lower than planned.

With the government having committed to providing 400 billion yen to the safety net, a total 960 billion yen will be made available in the scheme until March 2003.

Japan's second biggest corporate bankruptcy took place in September 1998, when Japan Leasing, a unit of failed Long-Term Credit Bank of Japan, went under with 2.18 trillion yen in debt.

($1 equals 109.08 Yen)

More information about the lbo-talk mailing list