Japan's only major foreign-owned bank has forced one of the country's mortgage lenders into bankruptcy.

Shinsei Bank came into being after the Long-Term Credit Bank - itself bankrupt thanks to its huge stable of bad loans - was sold in March 2000 to a consortium of US investors.

Now it is taking steps to improve its financial position, and mortgage bank First Credit Corp has become a victim of the shake-up.

First Credit - heavily indebted to Shinsei - was found bankrupt by a district court.

Observers said that the large number of companies unable to pay their debts hints that insolvency cases were likely to overhang the Japanese economy for some years.

End of the road

On Friday, Tokyo District Court ruled that First Credit owed creditors 12.7bn yen ($99.5m; �69.9m), more than it held in assets.

"Now, through a fair and open rehabilitation process, we would like them to find an appropriate sponsor and enact a swift restructuring plan," Shinsei said in a statement.

When it filed to force the bankruptcy in December, Shinsei was owed 126bn yen by First Credit, whose total debt burden was 252.2bn yen.

Shinsei had rejected a plan backed by many of the other 36 creditors, in which First Credit had agreed to pay back 15bn yen.

Difference of opinion

First Credit, though, fought to the last.

Noting that it was the first listed Japanese company to be forced into bankruptcy, First Credit warned that Shinsei's actions could destroy confidence in the accounting methods of other listed groups.

"If a big creditor forces such proceedings," said spokesman Kazuo Yamada, "the way of accounting can suddenly change, so what should investors believe?"

According to its own calculations, First Credit was still solvent, with assets worth 7.9bn yen more than its debts.

But its accounting practices valued its assets - such as its Tokyo HQ - at their purchase price, despite the fact that land and stock prices stand at a fraction of their levels of the late 1980s.

Shinsei, meanwhile, was forced to deny that its actions were designed to allow it to sell the company's debts back to the government as part of the latter's economic restructuring plan.