Japan, France cash offer to banks increases optimism


TOKYO — Japan said Tuesday it was ready to inject money into struggling banks after France announced a major cash boost for debt-laden institutions, adding to guarded optimism over international efforts to counter the financial crisis.

Amid hopes credit may be starting to flow again and a new U.S. package could kickstart the world’s biggest economy, the International Monetary Fund (IMF) said Europe should have avoided the worst thanks to its coordinated “crisis management” measures.

IMF Europe director Alessandro Leipold nevertheless called on European governments “to follow up with bold steps on their recent commitments,” notably with pump-priming budget decisions.

The IMF this month predicted that growth in the 15 nations that share the euro would slow sharply to 1.3 percent this year from 2.6 percent in 2007 and to just 0.2 percent next year.

These projections “remain broadly valid,” Leipold told a Brussels news conference. Japan, the second biggest economy, is ready to put public funds into banks that fall victim to the credit crunch, Economy Minister Kaoru Yosano said.

“The government will inject capital so that financing for small and mid-sized companies does not deteriorate,” Yosano told reporters.

French bank shares rose sharply Tuesday after the government announced it will inject 10.5 billion euros (US$14 billion) into the country’s six biggest banks.

The largest Credit Agricole will get three billion euros, BNP Paribas will get 2.55 billion and Societe Generale 1.7 billion, Finance Minister Christine Lagarde said. Please see BANKS on page (Related story on page 15)

Bank of France governor Christian Noyer insisted French banks were not short of capital. “The aim of the operation is not to recapitalize the banks… but to support the financing of the economy,” he said.

The world financial system was brought to the verge of collapse by widespread panic over bank exposure to bad housing loans in the United States which brought lending between banks to a near halt.

The European Central Bank said it would pump roughly 400 billion euros (US$530 billion) into eurozone money markets in coming days to get cash flowing. ECB chief economist Juergen Stark said interbank money markets are improving, but warned there was still a “serious risk” of more banking sector “accidents.”

“We see a slight improvement, a slight easing on the interbank market, but not yet a breakthrough,” Stark told German radio.

And signs of crisis remain everywhere.

Iceland’s biggest bank Kaupthing, nationalized at the height of the finance turmoil, has failed to pay interest to “samurai” bondholders in Japan, a bank alleged.

Kaupthing was supposed to pay interest Monday on a 50-billion-yen (US$493 million) issue of a three-year samurai bonds launched in October 2006.

“But there was no money transfer from Kaupthing Bank by the end of the scheduled payment day,” said a spokeswoman for Sumitomo Mitsui Banking Corp., which makes payments to bondholders for the Icelandic bank.

If Kaupthing fails to complete the payment within one-week, it will be in default on its debt obligations, she said.

The Icelandic government said it hoped to reach an agreement on an economic rescue loan from the IMF within a day or two. If it does receive a loan from the IMF, it would be the first Western country to do so since 1976.