2ND LD: Bad-loan disposal causes net loss for UFJ in 1st half.

TOKYO, Nov. 24 Kyodo

(EDS: UPDATING WITH MORE INFO, NEWS CONFERENCE OF UFJ HOLDINGS PRESIDENT)

UFJ Holdings Inc. reported Wednesday a group net loss of 674.28 billion yen in the fiscal first half, a reversal from a 179.85 billion yen profit a year earlier due to massive bad-loan disposal costs, making it the only loss-incurring lender among Japan's four ''megabanks.''

The ratio of bad loans to total lending at UFJ Holdings stood at 9.42 percent as of Sept. 30, while the three others -- Mizuho Financial Group Inc., Mitsubishi Tokyo Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. -- had already met the government's goal of halving the bad-loan ratio at major banks to the 4 percent level at the March 30 end of fiscal 2004 from the fiscal 2002 level.

UFJ Holdings, which plans to merge with Mitsubishi Tokyo next October to create the world's largest banking group in terms of assets, said its consolidated pretax balance saw a loss of 474.88 billion yen, compared with a profit of 136.31 billion yen a year before, with operating revenues falling 0.5 percent to 1,211.04 billion yen for the April-September period.

The nation's No. 4 banking group, which groups such financial units as UFJ Bank and UFJ Trust Bank, booked 614.18 billion yen in bad-loan disposal costs for the fiscal first half, up from 243.88 billion yen logged in the same six-month period last year.

The outstanding balance of bad loans held by the group totaled 4,154.32 billion yen at the end of September, up from 3,949.37 billion yen as of March 31, driving the ratio to total lending higher to 9.42 percent from 8.50 percent.

As of Sept. 30, the bad-loan ratios at Mizuho, Mitsubishi Tokyo and Sumitomo Mitsui came to 3.14 percent, 3.28 percent and 4.4 percent, leading banking analysts to say that the bad-loan problem at major banks -- a symbol of Japan's economic slump following the burst of the asset-inflated bubble in the early 1990s -- has effectively passed its peak.

Ryosuke Tamakoshi, president of UFJ Holdings, said he believes the banking group will be able to slash the bad-loan ratio to the 3 percent level at the end of next March if the rehabilitation plans it made with its major borrowers, such as ailing supermarket chain Daiei Inc., proceed as scheduled.

''Our biggest task is to put the bad-loan problem behind us,'' Tamakoshi said in announcing the group's earnings reports for the April-September period.

''I believe it is quite possible the bad-loan ratio will drop below 4 percent if the rehabilitation plans proceed steadily,'' he said.

Tamakoshi said UFJ Holdings is eyeing what he termed a ''backup plan'' to ensure that major troubled borrowers will promote rehabilitation plans as scheduled, indicating the banking group may consider extending debt waivers to certain borrowers.

Asked about a closely watched merger ratio with Mitsubishi Tokyo, Tamakoshi said a deal will not be reached this year, only reiterating that the two banking groups will decide on the ratio by next May.

He also said that UFJ Holdings will see its earnings expand considerably after joining forces with Mitsubishi Tokyo, voicing expectations of a synergy effect with its financially sound partner, which reported Wednesday a net profit of 171.68 billion yen for the fiscal first half, down 43.1 percent from a year earlier.

According to its earnings report, UFJ Holdings' capital adequacy ratio stood at a preliminary 9.92 percent on a group basis at the end of September, up from 9.24 percent as of March 31 and above the 8 percent required for internationally active banks.

UFJ Holdings said operating profit from its core banking business came to 394.73 billion yen during the fiscal first half, down from 431.00 billion yen a year earlier.

As in the previous year, UFJ Holdings will skip interim dividend payments.

For the full year to March 31 next year, UFJ Holdings expects to post a group net loss of 750 billion yen, a pretax loss of 530 billion yen and consolidated operating revenues of 2,300 billion yen.

In August, UFJ Holdings and Mitsubishi Tokyo reached a basic accord for a comprehensive merger in a deal that will create the world's largest banking group with assets of 190 trillion yen. They aim to merge Oct. 1 next year.

The proposed merger is seen as a necessary step for UFJ Holdings to survive. Mitsubishi Tokyo injected 700 billion yen in September to boost UFJ Bank's capital, swamped by massive bad-loan holdings that came to light following financial regulators' stricter auditing.