Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

July 24, 2007

[Minister's Statement]

Good morning. I have nothing to report on the Cabinet meeting.

[Questions and Answers]

Q.

Promise Co. and Sanyo Shinpan Finance Co. are negotiating the integration of their management structures. Apparent factors behind the move include the elimination of gray zone lending rates and the revised Money-Lending Business Control and Regulation Act. What is your view on this integration or the consumer loan industry's realignment?

A.

As you noted, media reports have emerged about the possible management integration between Promise and Sanyo Shinpan. Since this is related to specific companies' business decisions, I would like to refrain from making any direct comments on the move. I am also aware that the two companies have issued statements to the effect that they have not made any decision on management integration.

In general, we believe that the money lending business environment is growing increasingly difficult due to an ongoing increases in refund claims stemming from overcharged interest and the reduction of the maximum money-lending rate and the introduction of quantitative loan restrictions planned under the revised Money-Lending Business Control and Regulation Act. In such an environment, money lenders are left to build their respective business strategies, including the integration of management. Therefore, regulatory authorities should not make any comment on the future realignment of the industry. The authorities believe that the revised act should be implemented smoothly as money lenders appropriately reform their business models during a preparatory period in consideration of the requirements under the act. At the same time, money lenders should ensure borrowers' security and confidence by developing and improving systems for legal compliance and for business management. This is more important than anything else. We hope that realignment moves will lead to qualitative improvements in the industry.

Q.

Defaults on subprime mortgage loans have developed into a serious problem in the United States. Last week, Federal Reserve Chairman Bernanke estimated a maximum loss at $100 billion, or 12 trillion yen, on banks' subprime loans and on securities and investment funds linked to such loans. Some Japanese banks are believed to have extended such loans. What impact do you think the U.S. problem will have on Japanese banks?

A.

In the United States, it has been noted that financial institutions might incur heavy losses due to defaults on subprime loans. In general, we believe that individual financial institutions should appropriately manage risks when investing in high-risk financial products linked to subprime loans. In any case, the Financial Services Agency would like to closely monitor financial institutions' risk management as well as the subprime loan problem.

Mr. Bernanke's remark has spread throughout the world and we are closely observing relevant developments. We heard opinions from former Fed Chairman Volcker, who visited Japan recently. Given the outstanding value of such loans and possible defaults on them, our general impression is that the subprime mortgage problem may not have any widespread impact on the world's economic mood. While there are subprime loan mechanisms that reflect risks, the banks are prepared to manage the relevant risks. However, the psychological aspects of the economy must be viewed as important. In this sense, Mr. Bernanke clearly noted that the Fed has been carefully addressing the problem. We appreciate the U.S.'s even-handed response.

Q.

It will soon be revealed whether or not K.K. DaVinci Advisors' hostile bid to take over TOC Co. will be successful or not. A successful hostile takeover bid would be the first of its kind in Japan. What are your views on a successful hostile takeover bid's impact on the financial markets?

A.

Same as the commissioner, I would like to refrain from making any comments on specific cases such as this.

In general, the market must be sufficiently transparent and fair to allow shareholders and investors to base their investment decisions on appropriate information amid public tender offers. This is self-evident. In this sense, we would like to check whether information has been appropriately disclosed in this case. If real estate investment fund DaVinci Advisors' tender offer for TOC turns out to be successful, it may be viewed as big news. Therefore, we would like to monitor developments while checking whether appropriate procedures have been taken. In principle, we would like to build a sound market that will not be shaken new developments such as this.

(End)