Japanese Firms to Pay for Bank Rescue Effort : Asia: The quasi-public company will operate for 10 years and buy up to $25 billion worth of real estate.

TOKYO —  Japan’s major banks, insurance companies and brokerage houses will fund--without government aid--a corporation designed to rescue Japan’s troubled banks, the head of the Japan Federation of Banking Assns. said today.

The announcement, coming two months after Japanese Finance Minister Tsutomu Hata declared a crisis in the nation’s financial system, may be a disappointment to those who expected a grand gesture on the order of the plan devised by the U.S. government to bail out its failed thrifts.

According to a plan outlined by banking federation head Tsuneo Wakai, also president of Mitsubishi Bank, the financial institutions will jointly invest in a company to purchase real estate being held by banks as collateral against bad loans.

The new, quasi-public company will remain in operation for 10 years and will buy up to $25 billion worth of real estate from member banks in the first year with purchase prices to be determined by an “independent” price-monitoring committee, Wakai said.

“Even though we recommended its formation, the private sector should run it on its own,” said Hata, welcoming the bank plan at a press conference Friday. “No request should be made for public money.”

The proposed budget for land purchases is small given the size of the bad-debt problem. The Finance Ministry was expected to announce late Friday that non-performing loans--loans on which interest has not been paid for at least six months--totaled $102 billion at the end of September, up 50% from the end of March.

Peter Morgan, chief economist at Merrill Lynch Japan, however, estimated that a broader definition of bad loans would quickly push the bad-debt number above $300 billion. “The recession is not over and the bad debts are going to keep rising,” Morgan said. “Eventually they are going to be forced to do something on the order of the (U.S.) Resolution Trust Corp.,” he said.

Nevertheless, some analysts say the new company is an important first step in the process of settling bank debt problems.

“It will help the banks’ balance sheets look better by enabling them to liquidate some of their bad assets,” said Mineko Sasaki-Smith, banking analyst at the Tokyo branch of Credit Suisse.

The new institution would enable the banks to sell the land at prices considered “reasonable” by a group of experts. Those prices will be published, and the government hopes that they will help boost land transactions by establishing a reference point for land values. When the property is resold by the joint company, however, the bank must cover any resulting losses from the sale.

The net result may do little more than buy time for the banks to clean up their balance sheets and restructure.

Already several banks have announced plans to cut employment by 20% over the next few years. If the banks don’t quickly recover, analysts have predicted the government would discreetly offer low-interest loans and special tax treatment to prop up the company.