Japan: Nippon Credit Bank Capital Injection,1997

In 1997, Japan experienced a financial crisis caused by the bursting of a bubble in commercial real estate prices. By March, Nippon Credit Bank (NCB), the smallest of Japan's three long-term credit banks, required government assistance due to its heavy exposure to commercial real estate and large amount of nonperforming loans. On April 1, the Bank of Japan (BoJ) announced the government's intention to recapitalize NCB as part of a restructuring package. To facilitate the injection, Japan's Ministry of Finance (MoF) engineered a consortium of large existing shareholders in NCB (mainly insurance companies) and the other two Japanese long-term credit banks. NCB, with the support of the MoF, asked consortium members to convert roughly 140 billion Japanese yen (JPY; USD 1.2 billion) in outstanding subordinated loans to NCB into preferred and common shares and purchase roughly JPY 70 billion in newly issued common shares. The BoJ agreed to purchase an additional JPY 80 billion in newly issued preferred shares in NCB via the primary account of New Financial Stabilization Fund (NFSF), funded and managed by the BoJ. In July 1997, the BoJ and private-sector consortium injected a total of JPY 291 billion into NCB. After the Financial Supervisory Agency conducted an audit which found the bank to be insolvent as of March 31, 1998, the prime minister placed NCB under temporary nationalization on December 13, 1998. The Stock Price Evaluation Committee, established by the Financial Reconstruction Commission, evaluated NCB shares as worthless, effectively wiping out the preferred shares held by the BoJ and the preferred and common shares held by consortium members. Upon direction by the prime minister, the Deposit Insurance Corporation of Japan (DICJ) assumed all of NCB's liabilities and purchased all shares in the bank, wiping out the full value of the preferred and common shares that the private-sector consortium and BoJ had acquired in 1997. The government later sold NCB to a separate consortium led by SoftBank Corporation in September 2000. NCB was reprivatized as Aozora Bank in January 2001.