According to a senior LTCB official, the Japanese government has chosen to enter final negotiations with a consortium led by Ripplewood Holdings for the purchase of the bank, edging out a competing offer from a pair of Japanese banks. The LTCB official wouldn't comment on Japanese media reports that Ripplewood would pay the government one billion yen ($9.5 million) to acquire LTCB's stock, and that in return, the government would inject 200 billion yen to 300 billion yen in capital into the bank and create a reserve of 300 billion yen to 500 billion yen against possible losses on LTCB's bad loans.

An official at Ripplewood's Tokyo office declined to comment on the negotiations. "We have an agreement to keep everything confidential," he said. "We have made a proposal to take over LTCB, but I can't make any further comment." Regulators at Japan's Financial Reconstruction Commission who are handling the disposal of the bank couldn't be reached for comment. LTCB was shut down by the government when regulators found it had grown insolvent under a massive pile of bad loans, a legacy of the speculative property lending by Japanese banks in the late 1980s and early 1990s.

The sale of the bank has been seen as a big test case of Japan's willingness to cede further control over its financial system to overseas interests. Last week, a group led by French billionaire Francois Pinault announced a deal to pay 25 billion yen for Aoba Life Insurance Ltd, the remnants of the bankrupt Nissan Life, marking the first time a foreign firm has ever taken over an entire defunct Japanese financial institution.

-- The Wall Street Journal