MOODY'S REVIEWS RATINGS FOR SUBORDINATED DEBT AND PREFERRED STOCK OF FIVE JAPANESE BANKS
TOKYO, 06-12-98 -- Moody's Investors Service placed under review for possible downgrade the ratings assigned to subordinated obligations and preferred stock issued through subsidiaries of five Japanese banks. Those ratings directly reflect the parent banks' creditworthiness based on the strength of guarantees or other support facilities provided by the parent banks. The parent banks' deposit ratings and senior debt ratings were not affected by these actions. The five banks, which have previously been assigned financial strength ratings of E or E+, indicating financial weakness, are listed below.
The reviews reflect Moody's concern that, as weak banks are resolved over the medium term, junior obligations that qualify as regulatory capital may be required to absorb loss. The legal framework for recapitalization and resolution of the system was introduced along with Yen 30 trillion of public funds in March 1998. However, Moody's pointed out, decisive measures to promote the system's restructuring have yet to be implemented. The rating agency said that the erosion of domestic and international confidence in the system has increased the pressure on the government to take decisive actions to solve the banking industry's fundamental problems.
Moody's currently assigns E or E+ bank financial strength ratings to 13 Japanese banks, including the above five banks affected by these rating actions. In Moody's opinion, these banks have serious financial deficiencies. Moody's said that, because these banks have substantially eroded their internal resources and face high prospective credit costs, unassisted recovery may be difficult. In light of the planned withdrawal of the government safety net in 2001, Moody's believes that these institutions may require intervention before that date.
As a result, uncertainty surrounding the prospective treatment of capital-type securities in failed-bank resolutions is rising. Going forward, there is a risk that the government could abandon the current "open bank" resolution method and instead adapt a "closed bank" approach in which a receivership mechanism could discriminate against junior claims. Reflecting this view, Moody's is considering widening further the differentials between deposit ratings and the ratings for such obligations (subordinated obligations and preferred stock).
The following ratings were placed under review for possible downgrade. (For reference, the parent banks' long-term deposit ratings and bank financial strength ratings were shown in parenthesis. The parent banks' ratings are not affected by these reviews.)
Subsidiaries of Sakura Bank (Sakura Bank at Baa1 / E+)
Sakura Bank (Canada) -- the Baa3 subordinated debt rating.
Sakura Capital Funding (Cayman) Limited -- the Ba1 junior subordinated debt rating.
Sakura Finance (Bermuda) Trust -- the "ba1" preferred stock rating.
Sakura Finance (Cayman) Limited -- the Baa3 subordinated debt rating.
Subsidiaries of Daiwa Bank (Daiwa Bank at Baa3 / E)
Daiwa International Finance (Cayman) Ltd. -- the Ba2 subordinated debt rating.
Daiwa PB Limited -- the Ba3 junior subordinated debt rating.
Subsidiary of Mitsui Trust & Banking (Mitsui Trust at Baa2 / E)
MTI Capital (Cayman) Limited -- the Ba1 subordinated debt rating.
Subsidiary of Yasuda Trust & Banking (Yasuda Trust at Baa3 / E)
YTB Finance (Aruba) A.E.C. -- the Ba2 subordinated debt rating.
Subsidiary of Hokuriku Bank (Hokuriku Bank at Baa3 / E)
Hokuriku International Cayman Limited -- the Ba2 subordinated debt rating and the Ba3 junior subordinated debt rating.
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