Wednesday, December 19, 2007

Japanese banks wary of U.S. subprime M-LEC rescue plan

Sumitomo Mitsui Banking Corp. President Masayuki Oku implied that his institution won't be participating in the U.S. subprime rescue fund as requested by its U.S. backers, according to published reports.

Oku said his bank is taking a cautious approach toward the request to contribute to the so-called superfund," implying that SMBC's participation is unlikely at this point, according to a report in the Nikkei business daily.

"We must consider this matter extremely carefully," he said at a regular news conference for the Japanese Bankers Association, which he heads. In Japan, use of such phrases often indicates that no action will be forthcoming.
Japanese bankers are far from novices when it comes to subprime loans and credit crunches.

The Japanese financial world underwent its own real-estate-centered crisis after the property bubble burst in 1989. Japan's banks were unable to raise funds in the short-term money markets and were forced to cut lending to corporate clients.

Japanese companies weren't able to borrow from banks or raise funds in the capital markets, and the economy entered what is now known as "The Lost Decade" of stop-and-go sluggish growth and contraction, until a banking-sector cleanup began in earnest in 2002.

Major U.S. banks reportedly asked Japan's three megabanks, Sumitomo Mitsui Financial Group (JP:8316: news, chart, profile) , Mitsubishi UFJ Financial Group (JP:8306:
to each set up a credit line of $5 billion, or roughly 550 billion yen, as part of the master liquidity-enhancement conduit, or M-LEC.