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07 Aug 1997
MOODY'S CONFIRMS Baa1/P-2 DEPOSIT RATINGS OF LONG-TERM CREDIT BANK OF JAPAN, AND DOWNGRADES THE BANK'S SENIOR DEBT RATING TO Baa2 AND FINANCIAL STRENGTH RATING TO E+
Tokyo, 08-07-97 -- Moody's Investors Service confirmed the Baa1/Prime-2 deposit ratings of Long-Term Credit Bank of Japan (LTCB). At the same time, the rating agency lowered the bank's senior debt rating to Baa 2 from Baa1 and its financial strength rating to E+ from D. These rating actions conclude the review begun on February 18, 1997. Moody's said that the deposit rating confirmations reflect LTCB's ongoing, albeit low, profitability, as well as pro-active strategic initiatives taken by LTCB in response to the rapid shifts now occurring in the Japanese financial sector.
Moody's said, however, that LTCB remains vulnerable to a secular erosion of its wholesale banking franchise. Continued margin pressure on the wholesale bank is likely, because of accelerating disintermediation, excess banking capacity, and fewer lending opportunities in the low-growth domestic economy. In addition, the funding advantage enjoyed by LTCB through its ability to issue long-term domestic debentures may decline further, as the evolution of Japan's capital markets provides investors with a broader range of investment alternatives. These trends should reduce LTCB's already low level of profitability, the rating agency said.
In Moody's view, LTCB's strategic alliance with Swiss Bank Corporation ("SBC") to conduct investment banking, asset management and private banking is a somewhat positive development, but it does not fully offset the secular erosion of LTCB's core business. The alliance will provide LTCB with certain competitive advantages in positioning itself for opportunities presented by Japan's "Big Bang" financial reforms. The joint ventures will benefit from the synergy of LTCB's access to Japanese corporate customers and SBC's global franchise. However, Moody's added, the joint ventures are not likely to contribute materially to LTCB's earnings in the medium term, because of intensifying competition in these sectors and the low commission levels prevailing in Japan.
LTCB's asset quality remains a concern, Moody's said. The unrealized losses embedded in the bank's commercial real estate-related portfolio, including LTCB's significant exposure to its non-bank affiliates, remain large. In Moody's opinion, it is likely that substantial additional provisions will be required, particularly since LTCB's reserve coverage is among the lowest of major Japanese banks. Although the new capital to be provided by SBC will give LTCB some additional cushion, the size of the embedded losses should continue to be large relative to LTCB's capital.
Moody's said that the downgrade of the financial strength rating from D to E+ reflects LTCB's weak financial fundamentals. The downgrade of the senior and subordinated debt ratings reflects Moody's opinion of their relative juniority under current and expected future resolution practices in Japan.
The following ratings were confirmed:
Long-Term Credit Bank of Japan -- the Baa1 rating for long-term deposits, and the Prime-2 ratings for short-term deposits and short-term LOC obligations.
LTCB Australia -- the Prime-2 rating for short-term deposits.
LTCB International -- the Prime-2 rating for commercial paper.
The following ratings were downgraded:
Long-Term Credit Bank of Japan -- the senior debt rating to Baa2 from Baa1, the rating for long-term LOC obligations to Baa2 from Baa1, and the financial strength rating to E+ from D.
Long-Term Credit Bank of Japan Finance -- the senior debt rating to Baa2 from Baa1, and the subordinated debt rating to Baa3 from Baa2.
The Long-Term Credit Bank of Japan, Limited, headquartered in Tokyo, is the second-largest of Japan's three long-term credit banks and one of the largest banks in the world with assets of Yen 30 trillion (U.S.$238 billion) as of March 31, 1997.
No Related Data.
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