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Japan puts bank under state rule

JAPAN took another step yesterday towards cleaning up its banking industry by putting Nippon Credit Bank under state control, overriding objections from the bank's executives who insisted it was not insolvent.

It is only the second time since World War II that a top lender has come under state control. In October, the government also took over the Long-Term Credit Bank of Japan when a huge burden of bad loans threatened to sink it.

The government's financial watchdog declared NCB insolvent on Friday, with at least 3.2 trillion yen (pounds 16.3bn) in unrecoverable or high-risk loans and massive stock valuation losses. NCB petitioned the government yesterday but the last minute appeal failed.

NCB's president Shigeoki Togo, a former central banker, said it disputed the government's findings and that the decision was regrettable and taken too quickly. All of the bank's top executives will resign.

The government is expected to announce plans shortly for buying all outstanding shares of Nippon Credit. But because the bank has been declared insolvent, shareholders are unlikely to receive much, if any, compensation.

That would result in big losses for major shareholders such as Japan's Dai-Ichi Kangyo Bank and Nippon Life Insurance Co. - AP