Asahi in loan tieup with Goldman Sachs

By Alex Frew McMillan CNN Hong Kong

TOKYO, Japan -- Asahi Bank will form a joint venture with Goldman Sachs to handle its problem loans.

The bank confirmed Monday it plans to form a tie-up company with Goldman by the end of March, the end of Japan's business year.

A spokesman said it was "roughly correct" that the bank would sell from 200 billion yen to 300 billion yen ($1.67 billion to $2.5 billion) in risky and already-bad loans to the company.

The company would then try to salvage as much value as possible out of the loans. Both Goldman and Asahi will invest in the company.

Offloading similar amount to RCC

"It's a very rough scheme," said Kazuhiko Nishiki, an investor-relations spokesman for Asahi. "We will choose loans within our portfolio, mainly risk category [loans], and we will sell it to Goldman Sachs."

Other details have yet to be finalized, he said.

Asahi will also sell a similar amount of loans to the Resolution and Collection Corp., a government backed company that buys bad loans from banks.

Asahi had around 830 billion yen ($6.9 billion) of "core" bad loans as of the end of March. That includes loans already bad and those at risk of going bad. That's out of a total loan portfolio of around 20 trillion yen ($167 billion).

Japan's biggest business problem

Bad loans have plagued Japan's banks for years and are widely viewed as the biggest issue facing Japan, as it tries to overhaul its economy. They have recently been growing faster than banks are able to write them off, and falling stock prices have hampered the banks' ability to handle them.

Asahi hopes the cooperative effort with Goldman and the sales to the RCC will help it deal with its problem loans over the next two years.

Asahi is one of Japan's weakest large banks. It is merging with Daiwa Bank to form a "superregional" bank, also by the end of March.

Asahi said it still has to negotiate with Daiwa to see if that bank will participate in the venture with Goldman Sachs.

Daiwa is widely viewed as the weakest of Japan's "city banks," or big players. Asahi's eagerness to merge with a smaller bank raised questions about its own health.

Day traders blamed for volatile stock

Those questions resurfaced last week, when Asahi's stock was buffeted by rumors it was in bad financial straits.

It was the most heavily traded stock in Tokyo on Friday, which Nishiki called "incredible." Its sharp price declines saw it at times down more than 30 percent in a day.

On Thursday it hit 76 yen, its low for the year and sharply off its 399 yen high. That set off a selloff in bank stocks, followed by a short selling squeeze that drove bank stocks higher after Asahi came back.

Nishiki said the volatility stemmed from day traders and small- and mid-size brokerages, who were turning quick profits off the rumors. They exaggerated the price moves by jumping in and out of the stock, he said.

"Our share price is very weak, and such kind of rumors may be very to easy to occur in the market," Nishiki said. "Individual investors who buy our shares very easily and sell very easily don't need truth. They need price movement in the short term."

Asahi's stock was up 8.7 percent at 100 yen on Monday afternoon.