Long-Term Credit Bank of Japan
| File:LTCB logo.svg | |
| Industry | Financial services |
|---|---|
| Predecessor | long-term financial divisions of Nippon Kangyo Bank and Hokkaido Takushoku Bank |
| Founded | 1952 |
| Defunct | 1998 (bankruptcy) 2000 (restructured) |
| Fate | Bankruptcy; acquired by Ripplewood |
| Successor | Shinsei Bank |
| Headquarters | Tokyo, Japan |
Key people | Binsuke Sugiura, President |
Known as LTCB in English and in Japanese, The Long-Term Credit Bank of Japan was established in 1952 under the administration of Shigeru Yoshida with the objective of supplying long-term financing to Japanese industries. Alongside the Industrial Bank of Japan and the Nippon Kangyo Bank, it played a crucial role in financing Japan’s economic recovery and growth following World War II.
Encountering severe challenges from non-performing loans during the 1990s, LTCB was nationalized in 1998. Subsequently, in 2000, it became the first Japanese bank to be acquired by a foreign entity when a US-led consortium led by Ripplewood Holdings took ownership. Later that year, the institution was rebranded as Shinsei Bank.
History
The Long-Term Credit Bank Act was passed by the Diet of Japan in June 1952 and came into effect in December of the same year, establishing LTCB as a stock company (kabushiki kaisha) with its headquarters located in Tokyo’s Kudan district. The bank expanded its domestic footprint by opening branches in Osaka and Sapporo during 1953 and forged partnerships with regional banks. Benefiting from Japan’s rapid postwar economic expansion, LTCB achieved profitability swiftly, paying its first dividend in 1954 and securing a listing on the Tokyo Stock Exchange by 1970.
Conceived under Finance Minister Hayato Ikeda, LTCB was created as a specialized financial institution to address the mismatch between commercial banks’ short-term deposit liabilities and their clients’ demand for long-term funding. It issued long-term bonds that were favored for their attractive yields, reliable credit ratings, and negotiability as bearer instruments. In 1956, LTCB relocated to the Tokyo Building in the Marunouchi district and progressively established an international presence with offices opening in New York (1964), London, Sydney, Amsterdam, Los Angeles, among other major financial hubs.
Globalization
The 1970s introduced significant challenges for LTCB as the government’s increased issuance of Japanese government bonds elevated its cost of capital. Concurrently, corporate demand for financing diminished due to slower growth rates, while an increasing number of Japanese companies turned to foreign sources for capital.
Following the financial liberalization agreement of 1985, LTCB undertook a strategic transformation to adapt its business model. This included sending staff abroad for training in the United States and Europe to support its globalization efforts. In 1988, it acquired Greenwich Capital Markets, a securities firm based in Connecticut, marking its entry into the US securities market. By the early 1990s, LTCB had become the leading arranger of yen-denominated foreign bonds (samurai bonds).
With corporate lending largely dominated by the Industrial Bank of Japan, LTCB shifted focus toward real estate finance during the mid-1980s. It gained a reputation for engaging in high-risk investments involving heavily leveraged hotel purchases across locations such as New York, Saipan, Vietnam, and Australia during Japan’s late-1980s asset price bubble.
By 1990, LTCB ranked ninth worldwide by market capitalization and was considered one of Japan’s most esteemed financial institutions. In 1993, it moved its headquarters to a new office near Hibiya Park in Tokyo.
Decline in the 1990s
Following the collapse of the economic bubble, LTCB, like many other Japanese financial institutions, encountered a critical surge in non-performing loans. The 1997 Asian financial crisis, which led to the downfall of prominent entities such as Hokkaido Takushoku Bank, further deteriorated LTCB’s financial stability. Negotiations with Swiss Bank Corporation (now integrated into UBS AG) for a cross-shareholding alliance were terminated in 1997 after SBC uncovered LTCB’s growing volume of bad debts. Between 1993 and 1998, LTCB’s non-performing loans escalated dramatically from 2.4 trillion yen to 5 trillion yen.
During the summer of 1998, LTCB’s share price collapsed by more than 70% following public disclosure of its impaired loan portfolio. Concerned about potential worldwide financial repercussions, US Deputy Treasury Secretary Lawrence Summers urged Japan to address the crisis promptly. LTCB briefly explored a merger with the more stable Sumitomo Trust and Banking, but investor opposition led to the abandonment of these discussions. Subsequently, under the administration of Keizo Obuchi, the government proceeded with nationalizing LTCB, effective from October 23, 1998.
In March 2000, ownership of LTCB transferred for ¥1 billion (approximately US$9.5 million) to New LTCB Partners CV, a foreign banking consortium spearheaded by Ripplewood Holdings, outbidding The Chuo Mitsui Trust and Banking Co.. The institution was rebranded as Shinsei Bank in June 2000, removed from the Tokyo Stock Exchange listing, and relieved of its toxic assets. Shinsei Bank successfully launched an initial public offering in 2004 and continues to operate as a commercial banking entity today.
Legal actions against management
In 1998, prosecutors launched investigations into several LTCB executives concerning unauthorized dividend distributions during a period when the bank was insolvent. Following the leak of his indictment, Takashi Uehara, who headed corporate planning, took his own life in May 1999; shortly thereafter, Kazunori Fukuda, manager of the Osaka branch, also committed suicide.
In June 1999, LTCB’s president Katsunobu Onogi along with two executive vice presidents were detained on charges related to falsifying profit reports and sanctioning unlawful dividend payments. Upon appeal, Onogi was sentenced to three years imprisonment with a four-year probation period; his counterparts received sentences of two years and three years' probation respectively. However, in 2008, Japan’s Supreme Court overturned these convictions, citing ambiguous and transitional accounting regulations at that time. Additionally, efforts by the government to obtain restitution from these executives were unsuccessful.
Further reading
- Gillian Tett, Saving The Sun (Harper Business, 2003)