The end of grey-zone interest and the refund burden — rebuilding a broken earnings model (2007)

A rebuilt way of earning, and capital’s answer

The weight of this decision lies in how a company conducts itself when the law removes the premise of how it earns. With the grey-zone rate — the source of its spread — gone, and past lending now demanding repayment as overpaid interest, choosing to cut its own rate and provision for the whole burden at once was a decision to acknowledge the pain rather than defer it. The swing from the previous year’s profit to a loss of ¥438.0bn in a single year measures the blow, but it was precisely because the estimate of what had to be repaid went onto the books early that the ground for the rebuild was settled. Closing staffed branches and shifting cost onto unmanned operations was, in the same way, the work of drawing in advance the shape of a profit that would survive at a low rate.

Even so, refunding overpaid interest was not something one company could finish by its own effort. As Takefuji gave out and claims washed over the industry, Acom carried losses on the order of ¥100bn twice over. Bearing that decade-long repayment of profits once swollen by high rates was more than an unsecured loan spread could stand. Capital’s answer was the 2008 consolidation into Mitsubishi UFJ. By becoming part of a group that could raise money cheaply, Acom secured a way to keep a profit in a world capped at 18.0%. A rebuilt way of earning and a recapitalisation that brought a backer were two answers to the same crisis.