Aozora Hires a Specialist To Size Up Debt Bargains - WSJ.

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August 28, 2008

Aozora Hires a Specialist To Size Up Debt Bargains

Bank Eager to Learn From Past Mistakes; Top-Level Shake-Up
By ALISON TUDOR
August 28, 2008

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TOKYO -- Aozora Bank Ltd. has hired veteran distressed-debt specialist Brian Prince to help it find bargains in the global credit crunch and step up its push into specialized loan products, according to people familiar with the matter. Mr. Prince will join Aozora, whose biggest shareholder is U.S. investment firm Cerberus Capital Management L.P., as a special adviser to the board starting Sept. 1, the people said. They said he is expected to become chief operating officer shortly, in the top echelon of the bank alongside Chief Executive Federico Sacasa. Mr. Prince, 44 years old, last worked in Tokyo between 1997 and 2003, when the local industry was in crisis. Banks held more than $1 trillion in bad loans, and Western investment bankers made fortunes turning around nonperforming loans all over Japan. While most Japanese companies have now paid down their debt after several years of carefully hoarding cash, corporate earnings have started to deteriorate as the world's second-largest economy flirts with recession. Bankruptcies have started to creep higher again in certain sectors, such as construction and real estate. Monthly bankruptcies hit a four-year high in Japan during July, and credit costs jumped at Japanese banks for the April-June quarter. Aozora's board is keen to see the bank learn from the mistakes made during the last banking crisis in Japan, when lenders were slow to write down debt and seize on opportunities, and act quickly in the current credit crunch, the people close to the situation said. The strategy is not without its dangers. Aozora recently slashed its profit forecast by 40% for the year ending March 31, 2009, citing a hefty markdown in the value of its stake in GMAC LLC, the unprofitable finance arm of General Motors Corp. in which it invested alongside Cerberus. Cerberus counts Aozora as its largest investment in Japan and one of its biggest globally. In April, Cerberus raised its stake in the midsize lender to nearly 46% from 37.5%. Aozora has been widely seen as a test case of foreigners' ability to invest successfully in Japanese banks. Mr. Prince, who has a reputation of acting decisively, last held a post in Tokyo as co-head of

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Aozora Hires a Specialist To Size Up Debt Bargains - WSJ.com

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institutional banking at Shinsei Bank Ltd., the first Japanese bank to be acquired by foreigners, after its predecessor, Long Term Credit Bank, collapsed under a mountain of bad debt in 1998. During his tenure at Shinsei, Mr. Prince was in charge of aggressively writing off bad loans and working with struggling borrowers. Mr. Prince, who grew up in upstate New York, worked at Lehman Brothers for seven years before joining Shinsei, acting most recently as its Asian head of principal transactions, which included working on asset-backed securities. Aozora executives say they believe the bank is well-placed to benefit from the credit-market turmoil given that its capital adequacy ratio was a healthy 14% as of June 30. Aozora has also been honing its skills in specialized lending areas such as real-estate nonrecourse lending, leveraged loans and, more recently, project finance. The appointment of Mr. Prince is part of a broader management shake-up. The bank is bringing on board Kunimi Tokuoka, who joins Sept. 1 from another Japanese bank, Mizuho Securities Co., as senior managing executive in charge of liability management, people familiar with the situation said. And Jonathan Fiorello is joining as the head of the global investment group from Goldman Sachs Group Inc., where he has worked in specialty finance, according to people with knowledge of the hire. Aozora appointed a new chief financial officer, Richard Layton, in May. The bank also is believed to be looking for a chairman to succeed Kimikazu Noumi, who left abruptly in May. Management hopes the latest influx of talent will ease concerns about Aozora's business strategy and bolster its share price, which is languishing near all-time lows. Write to Alison Tudor at alison.tudor@wsj.com1
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