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Troubled Japanese bank collapses over bad debts

November 17, 1997 GMT

TOKYO (AP) _ In a move signaling the collapse of one of Japan’s largest financial institutions, ailing Hokkaido Takushoku Bank will transfer most of its operations to another bank, officials said today.

Hoping to calm investors and depositors, the Bank of Japan said it will provide special loans to the troubled bank to cover withdrawals. The financing was extended after Hokkaido Takushoku informed the central bank it would be ``difficult″ to continue business because of bad debt problems.

``You can probably view it as the collapse of Hokkaido Takushoku,″ said Walter Altherr, banking industry analyst in the Tokyo office of Jardine Fleming Securities Co.

The Japanese stock market’s recent plunge to more than two-year lows likely prompted the bank’s action, Altherr said, noting the drop in share prices slashed the value of the bank’s equity holdings.

Hokkaido Takushoku, Japan’s 11th-largest city bank, will transfer most of its domestic branches to North Pacific Bank, another bank based on the northern Japanese island of Hokkaido, central bank officials said.

Hokkaido Takushoku tried to restructure itself this summer by shedding its overseas operations. A healthier regional bank, which had planned to merge with Hokkaido Takushoku, said last month it was postponing the deal.

At the end of March, Hokkaido Takushoku held $7.47 billion in non-performing loans, bank officials said.

Many Japanese financial institutions were saddled by huge amounts of bad debts after asset-inflated stock and land prices collapsed in the early 1990s. Many of the loans were secured with land, which is now about 70 percent below its peak prices.

The Tokyo Stock Exchange suspended trading in shares of Hokkaido Takushoku and North Pacific Bank for today’s session.