LTCB's short-term ratings remain on CreditWatch Developing.

Related entities are also affected (see list below).

LTCB, as part of its restructuring plan has announced it will provide financial support, including the forgiveness of loans, amounting to Y520 billion, for three of its affiliates, Japan Leasing Corp, Nippon Landic Co Ltd, and Nippon Enterprise Development Corp. It also announced plans to provide loan loss provisions of approximately Y230 billion.

Standard & Poor's believes, however, that the planned provisions remain well below the potential losses on its loan portfolio. Total potential losses, including the above, could ultimately exceed the Y750 billion announced by the bank.

Furthermore, unrealised losses onLTCB's stock portfolio have increased since March 1998 and are estimated by the bank at approximately Y350 billion, with the Nikkei index at Y14,000.

Many bank debentures continue not to be renewed as they mature, with LTCB compensating by reducing its loans, bond portfolio, and liquid assets. The Bank of Japan has stated that it will provide liquidity to LTCB, if necessary.

Thus, the future of LTCB is totally dependent on the planned merger with Sumitomo Trust & Banking Co Ltd. Sumitomo Trust maintains its position that it will only merge with LTCB if LTCB's problem assets are first cleaned up. In fact, Sumitomo has engaged Arthur Andersen to assist in its due diligence.

Although the Japanese government has voiced full support for the merger, and intends to inject additional capital into LTCB prior to the merger, the process could be substantially complicated if either: LTCB is found to be insolvent after the audit, now in process, by the new Financial Supervisory Agency; or, even if it is foundsolvent, if there is a big divergence in opinion between the government and Sumitomo Trust as to the necessary amount of asset clean-up.

The double-`B'-minus rating on the senior long-term debt and certificates of deposit takes into account the likelihood that even if the merger were to fall through and LTCB to fail, the government would probably ensure that senior creditors, including holders of rated debt, debentures, and certificates of deposit would be paid on a timely basis.

The single-`B'-plus counter-party rating incorporates the somewhat greater risk faced by others, including subordinated creditors.

CreditWatch Developing indicates that if the merger is consummated, a merged Sumitomo Trust/LTCB would probably be rated significantly higher than LTCB. Assuming Sumitomo Trust maintains its resolve to only merge with a cleaned-up and recapitalised LTCB, the ratings, as previously indicated, would probably be triple-`B' or triple-`B'-minus, depending on the merged entity's overall asset quality,quality of capital, and business prospects.

However, if the merger falls through, LTCB's ratings, particularly its counter-party rating, could be lowered further, said Standard & Poor's.