Lender in Japan’s biggest bankruptcy

Agence France Presse

The collapse of SFCG Co. jolted the Tokyo stock market, with the Nikkei sliding to the lowest level in almost four months.

The firm, which lent mainly to small companies, said it had filed for bankruptcy protection from the Tokyo District Court with liabilities of 338.0 billion yen as of the end of October.

The collapse of the moneylender, whose creditors reportedly include Citigroup, is Japan's largest corporate bankruptcy this year, according to private research firm Teikoku Databank.

SFCG blamed its problems on "extremely severe financial conditions" that caused mounting bad debts and a slump in new loans.

Even before the global credit crunch erupted, Japan's consumer lenders were reeling from a tightening of industry regulations in 2006.

The collapse added to uncertainty over prospects for Japanese non-bank lenders, SMBC Friend Securities strategist Hideaki Higashi said.

"It could further worsen the credit crunch gripping medium- and small-companies," he said.

SFCG, established in 1978, grew quickly during the recession of the 1990s by extending high-interest loans to small- and medium-sized businesses that used real estate assets as collateral.

Formerly known as Shoko Fund, it renamed itself after a series of lawsuits were filed against it for its high interest rates and collection methods. Japan is seeing a rising number of bankruptcies as a result of the global credit crunch and economic downturn.

Corporate bankruptcies in Japan jumped 15.7 percent in 2008, when 12,681 companies went under with combined debts of 11.91 trillion yen, according to Teikoku Databank.