Takefuji Corp said it filed for bankruptcy on Tuesday owing $5.1 billion, making it the biggest Japanese consumer lender to fail since a court ruling in 2006 forced the industry to repay borrowers for excessive interest charges. The lender's president, Akira Kiyokawa, and executive vice president Takeru Takei, son of the company's founder Yasuo Takei, resigned following the court filing. Director, Junichi Yoshida, replaces Kiyokawa Takefuji's boss.
To file for bankruptcy Takefuji, which had been considered at risk of failing as it lacked the financial backing of a big Japanese bank, said it had filed with a Tokyo court for protection from creditors, citing interest reimbursements, tighter lending rules and harsh competition. Media had reported the likely bankruptcy filing on Monday.
"We made the decision to file because we were clearly in a situation were we were going to default," Yoshida said at a press briefing in Tokyo."It became clear we could not go on," he added. Takefuji and other consumer lenders have struggled to survive after Japanese courts ruled in 2006 that they had charged too much interest and had to repay borrowers. A recent government cap on interest rates has further hobbled the industry.
Takefuji faces claims of as much as 2 trillion yen ($24 billion) yen from about 2 million customers a Takefuji lawyer involved in the bankruptcy filing, Eiichi Kobata, said at the press conference.
The burden of interest repayments has already claimed several smaller casualties among consumer lenders. The fear now for Takefuji's rivals is that its failure will spark a run of claims by borrowers worried they will not get refunds the court ruling promised. Analysts said Takefuji's problems posed little wider threat to the overall system, however, because depositors' funds were not at risk.
"Takefuji has raised most of its capital in bonds, which are largely held by foreign investors, mostly hedge funds, so the bankruptcy would not have a big impact on the financial system," Deutsche Securities credit analyst Junichi Shimizu said.
Standard & Poor's dropped the lender to its lowest rating for long-term counterparty credit and senior unsecured debt, D, likely to default on its obligations. Shares of Takefuji went untraded for a second day on Tuesday on a glut of sell orders before closing at 116 yen, down by their daily limit of 50 yen, or 30 percent. The stock is down 70 percent since the start of the year.
Shares in rivals slipped further after sharp falls on Monday. Acom Co, 37 percent owned by Mitsubishi UFJ Financial Group and considered the strongest among Japan's top four consumer lenders, fell 1.3 percent. Unaffiliated Aiful Corp slid 3.3 percent, while Promise, 20 percent owned by Sumitomo Mitsui Financial Group, declined 0.9 percent. Shinsei Bank, Japan's first foreign-owned lender, operates two consumer finance units under the brands Aplus and Lake, which unlike competitors it funds with deposits.