Takefuji Files for Bankruptcy Protection After Refunds

Takefuji Corp. filed for bankruptcy protection, becoming Japan’s biggest casualty of a four-year crackdown on coercive lending to consumers.

Takefuji listed 433.6 billion yen ($5.1 billion) in liabilities in a statement to the Tokyo Stock Exchange today. Director Junichi Yoshida took over as president from Akira Kiyokawa and Executive Vice President Taketeru Takei, son of founder Yasuo Takei, also resigned following a board meeting today, the statement said.

The lender, founded in 1966, aims to restructure its business as it doesn’t have enough cash to repay borrower claims of overpaid interest that are estimated to exceed 1 trillion yen. Rivals Aiful Corp., Promise Co. and Acom Co. may face an increase in claims in the wake of Takefuji’s bankruptcy.

“Debtors request refunds not only from Takefuji, but from all their lenders,” Takehito Yamanaka, an analyst at MF Global Equity, said in a report before the filing to the Tokyo District Court. “Claims may increase temporarily in the next couple of months as lawyers gather debtors.”

Takefuji’s failure, the second-biggest in Japan this year after Japan Airlines Corp., comes three months after a law went into effect prohibiting consumer lenders from charging interest higher than 20 percent or extending loans that exceed a third of a borrower’s annual income.

The company’s shares will be delisted from the Tokyo Stock Exchange on Oct. 29. They tumbled 32 percent to 116 yen at the close of trading before the bankruptcy filing, the maximum daily decline allowed by the bourse.

Find Sponsor

It will take about four months to determine Takefuji’s creditors, Eiichi Obata, a court-appointed lawyer, said at a news conference in Tokyo. Administrators will select financial advisers as soon as possible to find a sponsor for the company’s rehabilitation within a year, he said.

Financial Services Minister Shozaburo Jimi said the collapse will have no major effect on Japan’s banking system. He said earlier today that the banking regulator will examine the burden on consumer lenders stemming from their interest refunds.

“Consumer lenders’ business environment is in general very severe, and at the same time they play a vital role with about 15 million healthy borrowers,” Jimi said.

Takefuji has received 171.3 billion yen in claims of overcharged interest from 113,000 customers -- figures that could swell to at least 1 trillion yen from more than a million clients, Obata said. Lawsuits claiming overcharged interest cost the industry 4.4 trillion yen, according to the Japan Financial Services Association.

Lower-Income Clients

Consumer lenders’ customers typically take out loans to cover living expenses, with refinancing existing debt cited as the second-most common reason, according to a survey conducted by the association in December.

Fifty-three percent of individuals who borrow from the lenders have annual incomes of 3 million yen or less, the survey showed. Half of those borrowers may be unable to get additional loans from consumer finance companies because of the cap that limits debt to a third of annual income, the lobbying group said.

Takefuji’s demise may worsen household sentiment, which fell to a four-month low in August on growing evidence that Japan’s economic recovery is stalling.

“The fall of Takefuji, while having minimal impact on Japan’s financial system, would be gloomy news for consumers on the street and fuel bleak prospects for Japan’s economy,” said Yasuhide Yajima, an economist at NLI Research Institute in Tokyo.

Megabank Backers

Lenders backed by large banking groups such as Promise -- 21 percent owned by Sumitomo Mitsui Financial Group Inc. -- and Acom, a unit of Mitsubishi UFJ Financial Group Inc., have better prospects of weathering new regulations as they benefit from funding and loan guarantees, according to analysts and investors.

“It’s a matter of time before Japanese megabanks review consumer-lending businesses again and determine whether to continue holding them as a source of income or withdraw,” Yajima said.

Acom, the country’s biggest consumer lender by market value, slid 1.3 percent today and Promise, the second largest, fell 0.9 percent. Aiful, which avoided collapse by restructuring its debt last December, lost 3.3 percent.

Yasuo Takei founded Takefuji in a 13.2 square meter (142 square foot) Tokyo office with four employees. He became one of Japan’s richest people making unsecured loans through the company’s nationwide “Yen Shop” outlets and automated machines. Commercials featuring dancers became a television fixture.

Since Takei’s death in 2006, the company has cut staff by 33 percent and now employs about 2,000 people at 786 shops as it lowers costs and sells assets to cope with losses. He died the country’s second-wealthiest man, according to Forbes magazine.

Takei stepped down as chairman in December 2003 after admitting to a series of telephone wiretaps of journalists, for which he received a suspended jail sentence a year later. In 2005, he complied with a court order to divest to less than 25 percent his family-held stake in the firm.

To contact the reporters on this story: Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net.

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