Press Conference by FSA Commissioner Takafumi Sato
February 2, 2009
[Opening Remarks by FSA Commissioner Sato]
I am free to take your questions.
[Questions and Answers]
Regarding capital injection using public funds, Fukuho Bank formally announced today that it will consider filing an application. This is the third bank to make such an announcement, after Sapporo (Hokuyo) Holdings and Minami Nippon Bank, and these are all second-tier regional banks. What do you think of expectations that as regional banks and others have secured major local companies as their customers, the management conditions of second-tier regional banks may become more severe amid the economic downturn? Also, there has been a media report that the FSA (Financial Services Agency) has decided to request that regional banks make it easier to issue preferred shares by revising their articles of incorporation. Could you confirm any facts related to this?
As you know, so far Sapporo Hokuyo Holdings, Minami Nippon Bank and Fukuho Bank have announced that they will consider applying for governmental capital injection in order to enhance their ability to provide funds to local small and medium-size enterprises (SMEs) in a smooth and stable manner.
As you know, the turmoil in the global financial markets has affected the business environment for regional banks through stock price movements and changes in the condition of the real economy. According to financial results for the fiscal term ended in December 2008 that were announced by regional banks by last weekend, many banks, including both regional banks and second-tier regional banks, posted sharp profit declines or suffered losses because of such factors as increases in the cost of disposing of non-performing loans and write-offs of losses on securities holdings. The FSA thinks it is necessary to keep a close watch on the current situation surrounding regional banks with a high level of vigilance. Meanwhile, it is important that individual financial institutions sufficiently and properly exercise their financial intermediary function, and to this end, I hope that they will consider using the revised Act on Special Measures for Strengthening Financial Functions if they decide to increase their capital as part of “forward-looking management,” as I always say.
As for the revision of articles of incorporation, generally speaking, I believe it is important that financial institutions make voluntary judgments regarding future capital policies, including regarding procedural matters such as the revision of articles of incorporation related to the issuance of preferred shares, for the purpose that I mentioned, which is to strengthen their management foundation so that they can exercise their financial intermediary function in a stable, sustainable manner. The FSA hopes that such business judgment will be made in an appropriate manner, contributing to the soundness of Japanese financial institutions and the enhancement of their financial functions. As establishing a framework that enables quick issuance of preferred shares is to be prepared for an emergency, it is important to do this.
Isn’t the FSA considering requesting the establishment of a framework for the issuance of preferred shares through the revision of articles of incorporation?
As I have been saying, I hope that with due consideration of the purpose of the Act on Special Measures for Strengthening Financial Functions, which is to secure financial soundness and enable the exercise of the financial intermediary function, individual financial institutions will consider using this Act as an option when they make business judgments on a capital increase. In addition, the FSA has held briefing sessions across the country and expressed its hope that they will consider using the Act. People who are familiar with legal matters related to the Companies Act probably know that the procedural matters that I mentioned earlier are included among the items that should be taken into consideration as part of this broad initiative when individual banks consider this as an issue of business judgment.
Last week, the Tokyo Stock Exchange announced the outline for a market for professional investors, which featured the adoption of much more relaxed rules than those applicable to existing markets, such as not setting any particular numerical criteria for listing and requiring only semiannual disclosure, instead of quarterly disclosure. As the establishment of markets for professional investors was also included in the FSA’s Better Market Initiative (Plan for Strengthening the Competitiveness of Japan’s Financial and Capital Markets), what do you expect of the TSE’s market for professional investors and what do you think will be the challenges in maintaining the quality of listed companies?
The market for professional investors, the outline for which was announced by the Tokyo Stock Exchange, is expected to enhance the attractiveness of Japan’s capital market by providing a place where professional investors can make transactions based on their own responsibility, thus giving Japanese and foreign companies as well as professional investors opportunities for fund-raising and investment. On the other hand, there are some points to which we must pay attention, as you pointed out. Even in the case of a market for professional investors, of course, it is extremely important to ensure the transparency and fairness of the market. From a global perspective, too, I think that maintaining the transparency of the market has become an increasingly important task because of the ongoing global financial crisis. It is important that listing-related screening and management in a market for professional investors are conducted properly with due consideration of matters like this.
When an application is filed for an exchange operator license related to the TSE’s market for professional investors, the FSA will examine the application in accordance with the provisions of the Financial Instruments and Exchange Act.
Regarding the revision of articles of incorporation related to the Act on Special Measures for Strengthening Financial Functions, will the FSA, in short, request regional banks to revise their articles of incorporation some time before general shareholders meetings this year or request all of them to make revisions simultaneously or do something along those lines?
As I have been saying, whether or not to use the Act on Special Measures for Strengthening Financial Functions should be decided by individual banks themselves as a matter of business judgment. As whether to revise articles of incorporation as a procedural preparation should be considered by individual banks as part of their business judgment, we have no intention to request that they make such revisions. On the other hand, as I said earlier, it is important to do something with articles of incorporation in order to prepare for the implementation of a quick capital increase, namely a capital increase through the issuance of preferred shares, in the event of an emergency — this applies to not only to cases of the injection of public funds but also to cases of a capital increase through market-based or private arrangements like a third-party share allotment scheme — from the viewpoint of ensuring quick response to any emergency.
A Yomiuri Shimbun news article on Sunday reported that an FSA official who was introduced by a government-employed secretary working for Mr. Hidenao Nakagawa, a former secretary-general (of the Liberal Democratic Party), to an investor in a certain company was asked by the investor whether or not that company would be delisted and conveyed the view that that case did not meet the criteria for delisting. What do you think of this news, and do you think that conduct like this will raise some kind of problem?
As this concerns a very specific matter, I would like to refrain from making any comments. Generally speaking, whether to maintain the listing of a specific listed company or delist it is a matter to be judged by each exchange in accordance with its own rules.
Do you mean that as this is a matter to be judged by an exchange, there is no problem if an FSA official conveys his view to other people? Am I correct in understanding that as the FSA does not have decision-making authority, there is no problem if an FSA official reveals his view as in this case?
Whether to maintain the listing of a specific listed company or delist it is a matter to be judged by an exchange on its own responsibility.
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