The state-run Deposit Insurance Corp (DIC) said that administrators of Tokyo Sowa Bank, a second-tier regional bank that went bust last June, had signed a basic agreement with the Ross-led Asia Recovery Fund on the sale of the Tokyo-based bank.

The administrators said the Ross-led fund will pay 35 billion yen ($331 million) to take over Tokyo Sowa. The fund also asked the government to put up an unspecified amount of money to boost the bank's capital base, they said.

The sale is the third foreign takeover of a Japanese bank this year, reflecting deep structural changes that have brought on an influx of foreign investment in the sector.

Last month, the Asia Recovery Fund won the bidding race to buy Kofuku Bank, another failed regional bank based in Osaka, western Japan, for 30 billion yen. Ross would create a holding company to operate Kofuku and Tokyo Sowa, with former US Ambassador to Japan Walter Mondale as its top advisor.

"We believe there will be considerable synergies between Tokyo Sowa and Kofuku," Wilbur Ross told a news conference, saying he planned a merger between the two banks some time in the future. The administrators said the final contract will be sealed bythe end of September and the actual takeover will be completed by the end of March 2001.

The administrators said Tokyo Sowa's liabilities exceeded its assets by 431.2 billion yen as of March 31. But the government is expected to clear the debts before the fund takes it over.

"Bad debts are being left behind. Therefore, we believe that management will be able to devote full attention to building the bank and to developing new ways of serving its customer base," Ross said.

The deal calls for the Ross-led fund to take over Tokyo Sowa's more than 56 branches and 1,085 staff by March 2001, giving the Ross-led fund a grip on the Tokyo retail banking market following its purchase of an Osaka-based bank in May. The administrator said that the bank's goodwill will be sold to the fund for 100 million yen.

The other contender in the bidding was Shinsei Bank, there born entity of failed Long-Term Credit Bank of Japan (LTCB) now owned by US investment group Ripplewood Holdings.

The administrators were in favour of the Ross group's proposal because it would require much less public money to bail out Tokyo Sowa, a DIC official said.