Contagion has started to spread to non-bank financial institutions like GE in US and SFCG in Japan. Difficulties in the SME sectors will pull down SME Lenders including commercial banks. That is why in latest budget, the government will guarantee 80% SME loans. Not just for employment reasons....
Feb. 23 (Bloomberg) -- SFCG Co., a Japanese lender whose creditors include Citigroup Inc., filed for bankruptcy protection, triggering a slump in financial stocks on concern the country’s deepening recession will cause more failures.
SFCG, which focuses on loans to small businesses, listed 338 billion yen ($3.6 billion) in liabilities, making it the biggest bankruptcy by a publicly traded Japanese company in almost seven years. The firm owed Citigroup 71 billion yen as of July 31, according to a filing by SFCG on Oct. 27.
An index tracking Japanese non-bank lenders slumped to the lowest since at least 1983 on concern that the worsening economy, forecast to contract a record 4 percent in the fiscal year starting April 1, will cause financing to dry up. SFCG Chairman Kenshin Ohshima said getting funding became “almost impossible†after developer Urban Corp. went bankrupt in August.
“Up until now, bankruptcies were concentrated in the real estate and construction sectors, but the trend has widened to collapses across a broad range of industries,†said Nobuo Tomoda, an analyst at credit and bankruptcy research firm Tokyo Shoko Research Ltd. “It’s getting harder to obtain funds.â€
Citigroup arranged securitized transactions for SFCG, mostly involving loans to small and mid-sized businesses, and “has no direct lending exposure†to the company, Citigroup spokeswoman Atsuko Yoshitsugu said in an e-mail. In a securitization, loans are pooled and converted into packages of securities.
Bankruptcies Rise
A record 33 publicly traded companies in Japan declared bankruptcy last year as banks trimmed lending and consumer spending dropped. Hiroshima-based Urban filed for protection with 255.8 billion in liabilities on Aug. 13, the biggest failure last year among Japan-based companies.
Total corporate bankruptcies rose 15.8 percent to 1,360 cases in January, the eighth monthly increase.
“Investors are increasingly wondering which businesses can survive in the coming months,†Tomochika Kitaoka, a strategist at Tokyo-based Mizuho Securities Co., said in an interview with Bloomberg Television.
Shinsei Bank Ltd., which held 54.1 billion yen of SFCG debt as of July 31, according to a securities filing, led declines among Japanese banks in Tokyo trading. The Tokyo-based lender fell 7.6 percent to a record-low close of 85 yen, extending its decline this year to 39 percent.
Shinsei, Orix
Shinsei’s trust-banking unit holds securitized loans of SFCG on behalf of investors, the bank’s Chief Financial Officer Rahul Gupta said by phone today. Shinsei has no “direct exposure†to SFCG and doesn’t expect any “material impact†from the bankruptcy, Gupta said. He declined to provide details of the securitized loans.
Orix Corp., a Tokyo-based financial services company, fell 13 percent, the most since Dec. 4. The company, whose stock has dropped 59 percent this year, holds securitized loans to SFCG, which will not affect earnings, Orix said in a statement today.
Aiful Corp., a Kyoto-based consumer lender, declined 16 percent to 107 yen, the lowest since the company listed on the Tokyo Stock Exchange in 1998. Takefuji Corp., the nation’s third- largest consumer finance company by market value, also dropped 16 percent.
SFCG also cited difficulties in collecting on loans as a reason for its deteriorating finances in a statement today. Rising bad debts and losses on stock investments have forced lenders including Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, to cut earnings forecasts.
‘Deep Trouble’
“It’s increasingly clear Japan’s economy is in deep trouble,†said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. “We’ll likely see more financial companies report losses on securities writedowns and provisions for bad loans in coming months.â€
SFCG, which had 1,528 employees as of the end of October last year, started in December 1978 and also operates a real estate business and insurance agency. The company has 109 branches in Japan, according to its Web site.
“We can’t get funding from almost any financial firm,†Ohshima said at a press briefing in Tokyo. “Ever since the bankruptcy of Urban last August, procuring funds has become almost impossible.â€
Ohshima, 60, was ranked 302nd on Forbes’s list of the world’s richest people in 2000 and was No. 23 on the magazine’s list of Japan’s wealthiest in 2007, with an estimated fortune of about $1.2 billion. His daughter, Yuki, is married to the son of Fred Wilpon, owner of the New York Mets baseball team.
A graduate of Tokyo’s Keio University, Ohshima previously worked for Mitsui & Co. and wrote a book titled “Textbook for Billionaires,†which sold out its entire print run of 30,000 copies, according to the publisher.
Bond Default
SFCG’s shares, down 92 percent in the past year, will be delisted on March 24, according to the stock exchange’s Web site. SFCG had a market value of 15.8 billion yen before seeking bankruptcy, according to data compiled by Bloomberg.
The company’s shareholders include Hikari Tsushin Inc., with an 11.5 percent stake as of Feb. 4, and Deutsche Bank AG, with a 7.2 percent stake as of Jan. 19, according to Bloomberg data. Hikari Tsushin, a Tokyo-based telecommunications company, hasn’t made loans to SFCG, spokesman Taichi Konno said.
SFCG’s bankruptcy is the biggest by a listed Japanese company since general contractor Sato Kogyo Co. failed with 449.9 billion yen in liabilities in March 2002.
SFCG became the second Japanese company to default on bonds this year. The lender has a total of 41 billion yen in outstanding convertible bonds. Japan General Estate Co. defaulted on 10 billion yen in corporate bonds when it declared bankruptcy on Feb. 5.