GE considers credit unit sale after fee crackdown in Japan
Time:2007-9-3 23:03:19
From:
---
GENERAL Electric Co, the world’s largest provider of private-label credit cards, may sell its Japanese consumer-credit unit Lake after government restrictions on fees eroded earnings in the industry.
"Now is an appropriate time to evaluate various alternatives that are in the best interest of both our business and Lake’s long-term success," Robert Rendine, a spokesman for Fairfield, Connecticut-based General Electric, said yesterday by e-mail. "Much has changed in the Japan consumer-finance market over the last few years."
GE’s possible exit follows an increase in bad loans in Japan’s US$170 billion consumer-finance industry, after law makers and courts reduced the maximum interest that could be charged and gave borrowers more scope for demanding refunds. Promise Co, Japan’s third-largest consumer lender, offered to buy rival Sanyo Shinpan Finance Co last month.
"The industry continues to face a difficult environment because of increasing customer claims for refunds," Reiko Toritani, a senior director at Fitch Ratings in Tokyo, told Bloomberg News. "Smaller lenders with customers of weak credit quality are facing a more difficult situation."
The Financial Times newspaper reported the possible sale earlier, without saying where it obtained the information.
Lake ranks sixth among consumer lenders in Japan after Citigroup Inc with about 860 billion yen (US$7.5 billion) in outstanding loans, according to data from the Liaison Group of Consumer Finance Companies.
Japan’s law makers took aim last year at consumer lenders after aggressive marketing created a cycle of debt, with borrowers obtaining loans from one firm to repay another. A law was passed in December capping the maximum interest rate at 20 percent, down from 29 percent. Firms were also required to set aside more reserves against claims for interest refunds.
Aiful Corp, Japan’s biggest consumer lender, announced 1,900 job cuts in March and said it would close 1,520 outlets to reduce costs. Citigroup said in January it was shutting about 80 percent of its Japanese consumer-loan network.
GE’s Japan finance unit said in March it would close 60 percent of its consumer loan branches and cut its payroll by as much as 15 percent.
Lenders are also combining. Promise offered last month to buy Sanyo Shinpan for as much as 120 billion yen in cash to create Japan’s largest consumer lender.
Promise, which lost 378.3 billion yen in the year through March, announced plans in May to cut 40 billion yen in annual expenses within three years.
