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. Last Updated: 07/27/2016

Scandal Topples Top Japanese Money Man

TOKYO -- Takefuji Corp., Japan's largest consumer finance firm, said its chairman, Yasuo Takei, 73, would step down effective Monday, the latest development in a scandal that has sent its share price tumbling.

Takei was arrested Dec. 2 on suspicion of involvement in wiretapping the telephone of a freelance journalist who had written critical articles about the company.

The departure of the charismatic founder of the industry leader could have a ripple effect on Takefuji's business over the long term, but analysts said it was unlikely it would immediately face any operational problems triggered by a funding shortage.

"I don't see a severe funding problem near-term," said Jason Rogers, a credit analyst at Barclays Capital, adding that this "transitional risk" at top management was one of the business risks associated with consumer financing firms, which generally build their business around strong characters or families.

A financial analyst at a foreign investment bank said, "Takefuji has a good balance sheet, so it's an issue of how well the company deals with the reputation risk and how they would defend themselves if more problems were disclosed."

Takefuji has enjoyed growing profits over the past decade. Its capital ratio -- similar to core capital for banks -- is remarkably high at around 45 percent.

But the arrest comes as the industry struggles to maintain lending while containing default risks, with personal bankruptcies steadily rising on the back of a weak economy.

Uncertainty over Takei's future position in the company and a management reshuffle led to volatile moves in the price of Takefuji's bonds, while its shares have shed 16 percent since the arrest, hitting a lifetime low of 4,730 yen on Monday.

The yield on Takefuji's bonds has more than tripled to about 350 basis points over U.S. Treasuries from around 90 basis points a few weeks before the arrest, traders said.

About one-third of Takefuji's financing comes from bonds and less than 30 percent from bank loans -- both domestic and foreign banks -- with the rest being raised from its financing arm, insurance firms or leasing firms, said Rogers of Barclays Capital.

Takefuji's funding costs could rise further on a rating cut.

Standard & Poor's ratings agency kept Takefuji's A- long-term counterparty credit rating on credit watch with negative implications after the arrest.

A one-notch downgrade to triple-B would still keep Takefuji on investment grade.

Another investor concern is whether Takei's arrest could lead to revocation of the firm's license to operate a consumer financing business.

An official at the regulatory Financial Services Agency said an arrest or indictment in itself would not prompt it to revoke the license.