In the past, banks usually took steps to help troubled corporate customers return to financial health. Loans were renegotiated on terms more favorable to the borrower, bank employees were stationed in key positions within the firm to aid the development and the implementation of a restructuring plan, and fresh credit was provided to keep the operation going during rehabilitation. In addition, the bigger the client, the more concessions a bank would be willing to make. The management of nationwide chain store operator Nagasakiya Co., Ltd. experienced this new reality in February, when it filed for bankruptcy after Dai-Ichi Kangyo Bank, Ltd. officers refused to extend new loans. The cutoff was especially surprising because DKB earlier had seconded executives to the retailer to help the longtime customer with its restructuring.
Analysts cite two reasons for DKB's decision.
Even a bank that received significant public assistance no longer feels bound by old practices and traditions. Believing that the bank was obligated to support the company under the sale agreement with the government, L. Kakuei's officers were shocked by the new policy. LTCB officials explained that while they would maintain existing credit lines to the property developer as per the deal with Tokyo, additional loans were out of the question. Faced with this no-confidence vote, L. Kakuei executives felt that they had no choice but to file for bankruptcy. Firms are being pushed to produce consolidated reports as a rule and, therefore, no longer can hide debts by moving them to subsidiaries and affiliates.