At 25, Christopher Roberts had short, fair hair, an athletic build, he jogged every morning, slobbed around the house barefoot in shorts and T-shirt every weekend, and appeared at the office with a ready smile, a well-tailored suit and a patterned red or yellow tie. He was the very picture of an American investment banker, 1990-style. Bright, but not too bright. Personable, gung-ho, and crucially, with two years experience in mergers and acquisitions.

For the Japanese bank executive on a business stopover in Manhattan, it was more or less a case of sign at first sight. He established Roberts's credentials, asked not too many questions. Within two hours Roberts had accepted a job in Tokyo, agreed a salary and a departure date, and was sealing the deal over a cocktail. Six weeks later, he strolled into the Japanese bank's head office for his first day at work. He had found a modest room in a shared house in Tokyo with other foreigners for pounds 450 a month, and was ready to start learning Japanese and to put his financial skills to work for corporate Japan.

In 1990, the American property boom was at its final crazed peak, and the bank was intent on getting its hands on as much as possible. Roberts's job was straightforward; he was going to buy almost anything. American banks would come to his Japanese employers looking for a buyer for such-and- such a hotel, golf course or holiday resort complex. Roberts's colleagues would take a look at the figures presented by the American bankers. If they were satisfied that it seemed a good bet - and at the time almost everything looked like a good bet - the bank's mergers and acquisitions (M & A) department would then find a buyer in Japan.

Within days of his arrival, Roberts was sent back to America, criss-crossing the continent by air, flying first class and staying in the best hotels as he looked for hotels, beach resorts, golf clubs, apartment complexes, retirement homes and amusement parks for Japanese customers to buy.

To the Americans, business like Roberts's felt very threatening indeed. For Japan, which had already made enormous inroads into American industrial markets, was now buying up property at prices which Americans could not match. Nothing was immune: Japanese buyers acquired the Rockefeller Center in New York and Columbia Pictures in Hollywood. The Americans, the greatest colonisers of the modern world, had to come to terms with the fact that they were being colonised.

But if many stories of modern Japan bring acute discomfort to Americans, Christopher Roberts's is one that should not. For while the hi-tech combines of the East forge ahead, while its car manufacturers make progress that the Europeans and Americans remain unable to equal, their banking sector is quite another matter. Within two years Roberts was back home and his masters were trying to escape the backwash of their own acquisition mania.

THE world into which Roberts had sold himself was a strange one. On the one had it seemed to have financial muscle that far excelled Wall Street; eight of the ten largest banks in the world by assets were Japanese. On the other, entering a Japanese bank was like going back to a previous age. At the headquarters of his employer, one of the most powerful banks in Japan, he found himself in a cavernous room full of army-issue grey desks in orderly lines, with several employees sharing a single computer and no direct-dial incoming phone lines. None of the corner offices, personal computers and direct-dial telephones common in New York was in evidence.

He would arrive every day at 8.30am for a breakfast of cold eggs, coffee and toast in the company cafeteria. Like every other employee, he was expected to be at his desk at 8.50am, when a bell chimed to open the working day. At 11.30am, the department's general manager, or bucho, would get up from his desk and the rest of the department would know that was the signal for them, too, to go and have lunch.

All the banking work was done by men; but the office was also full of uniformed Office Ladies, taking phone messages in trilling high voices and bringing the bitter green brew of Japanese tea that every office worker drinks to keep up his energy during the day.

No funds could be spared for Roberts to learn Japanese, apparently, although the bank was happy to pay its best native staff to spend their afternoons learning English from Sesame Street on American cable television. So Roberts worked entirely in English, even in meetings with Japanese clients. Every decision, no matter how small, had to be brought to the bucho so that he could stamp the documents with his ivory seal to signify


Rules were strict: one day, Roberts came to the office in a natty Brooks Brothers bow tie. His colleagues eyed it anxiously all morning. When the boss appeared just before lunch after a morning of meetings outside the office, he summoned Roberts to his desk.

'What's that?' he asked.

'It's a bow-tie,' said the American, astonished that this piece of modest corporate eccentricity, accepted in Manhattan, should provoke raised eyebrows in Tokyo.

'Save it for parties,' said the boss bluntly, and sent him down to the subterranean shopping arcade beneath the bank's head office with orders to buy a plain black nylon tie of the kind bought by office workers summoned to a company funeral at short notice. Although he was forced to obey such small rules, Roberts was paid twice as much as any of his colleagues because his US experience meant he had skills they did not; it was more than he would have earned in New York, though a lot less than he would have earned for an American bank in Tokyo.

ROBERTS'S buying forays into the United States were powered by what seemed like an endless supply of cheap money, squirrelled away by Japanese workers who received artificially low rates of interest for their savings. For borrowers money was cheap, so much so that doubtful property companies could raise vast sums in Japan to buy real estate in the United States or Hawaii. Since the profits returned by the investment had to cover only modest interest bills, the Japanese customer was usually willing to pay more than an American who had to pay a full 10 per cent to get his money from Citibank and therefore demanded more than a 10 per cent return.

But things were about to take a turn. As the Eighties had drawn to a close, the huge amounts of money swilling around in Japan's financial system had begun to bid up the prices of all sorts of assets, from Impressionist paintings to Californian hotels. For borrowers, the trick seemed just to be to get hands on as much money as possible, and to be as ambitious as they dared: if they had second thoughts about a purchase, there would always be someone else - a 'bigger fool', as the theory goes - to whom it could be sold on at a handsome premium. Decisions to buy began to be based increasingly on guesses about the psychology of other buyers than on a sober estimate of the value of the asset.

In some cases, buyers lost their heads altogether. Japanese investors built a dollars 600m (then about pounds 380m) hotel in Maui, Hawaii, with pools, grottos and rapids stretching for 2,000ft, and a water-elevator to raise and lower swimmers using canal-like locks. What they failed to notice was that the hotel would need to charge dollars 700 per night for each room, and achieve a 75 per cent occupancy - just to break even.

Roberts's new colleagues at the bank were performing in the way that was the norm in Tokyo. Too often, they would accept without question the financial projections made by the American bank representing the seller - projections usually cast so as to be as optimistic as possible while just on the right side of the line dividing truth from falsehood.

In late 1990, prices of US properties rose more slowly, then levelled out, then began to fall. The bank began to take a second look at many of its biggest clients, wondering if it could be sure of getting back the money it had lent them. Roberts suddenly found that the valuation techniques he had learnt in New York but found unnecessary during his first few months in Tokyo were back in demand. He was asked to build up a financial model for calculating the worth of real-estate assets, and to run it through many properties bought by the bank's clients.

The results were frightening. Many of his bank's clients, huge property empires though they were, turned out to be insolvent. It was quite clear that they would be unable to continue paying even the interest on their debts, let alone the capital. Had the banking business been continuing satisfactorily, all might have been well. But the Tokyo stock market, too, had begun to fall. The Nikkei share index had reached a peak in 1990 of 38,713 points. In less than two years, it had dropped below 15,000; tens of billions of dollars - three times the total value of outstanding Third World debt - had been wiped off share values.

To make things worse, a conservative Governor at the Bank of Japan, Yasushi Mieno, was cranking up interest rates. At a dramatic speech at the Foreign Correspondents' Club in Tokyo in autumn 1990, he declared himself willing to see a fall of 20 per cent in property prices - thus puncturing in a few words the myth that had been almost universal before, that land prices in Japan could only go upwards.

In any industrial country, banks suffer when share prices fall. But in Japan, the position was rather special. Whereas banks in America and Europe had been forced by their regulators in the Eighties to make large write- offs in their accounts to cover the cost of bad debts, Japanese banks had not.

This was not because they had avoided lending money to unreliable people; on the contrary, many Japanese banks had been as carefree as the next in lending to Third World debtors and to US managers organising leveraged buyouts. Rather, it was because the Japanese authorities knew that Japanese banks had massive portfolios of shares which had been bought decades earlier and were still marked in their accounts at what had been paid for them - far, far less than what they were really worth.

Japanese bankers had always argued that these shares were their equivalent of the provisions for loan losses that western banks had been forced to make. There was a crucial difference, of course: in Japan, there was no need to admit the embarrassment of bad debts: while western banks were cutting dividends and declaring losses, Japanese banks could continue to declare profits, quietly confident that money lost to bad debtors could never submerge the huge pile of cash they had in the form of unrealised share profits.

Until the end of the Eighties, this strategy seemed to be proof that Japanese banks had a long-term view to put competitors to shame. The very reason that they had such huge share portfolios was because of the tradition that a bank in Japan takes a substantial stake in its biggest customers (and sometimes vice-versa). In return, the customer agrees to treat the bank as its 'main' bank, not only ordering its employees to take their personal accounts there, but also giving it first refusal on most financial transactions the firm does.

Together, the banks and their customers had benefited from the growth of the Japanese economy; and sitting comfortably on the cushion of those hidden shares, the banks seemed smugly immune to the problems that had beset competitors abroad.

As the stock market fell, however, things started to unravel. With those unrealised share profits melting away, the banks' underlying capital base was beginning to shrink - and their portfolio of doubtful loans to Japanese market speculators and to the owners of Hawaiian golf clubs and Manhattan skyscrapers suddenly began to look recklessly overleveraged.

AND SO Christopher Roberts embarked on a new phase of his career in Japan: liquidating what he had helped to acquire. In the United States or Europe, the clients would simply have declared themselves unable to pay their debts and filed for protection from their creditors. In Japan, the system was much less open. The very last thing a bank wanted was for one of its customers to go publicly and humiliatingly bankrupt. That would damage the bank's reputation and its credit standing, by making it clear to the world that it was unlikely to get back all the money it had lent. So the bank would send Roberts and a colleague over to the troubled client.

After a cup of tea and the ritual exchanging of business cards with the client's employees, Roberts would ask for all the paperwork concerning the transaction: title deeds, contracts, legal opinions, accountants' reports, everything. Shocked by his brusqueness, the property firm's managers would hesitate; but within 10 minutes, a pile of papers was on the coffee table, and the bankers were ready to leave.

A week later, they would be back - this time with a dozen colleagues, each equipped with business cards specially printed by the bank identifying them as 'employees' of the client. Their job would be to take over the running of the business on the bank's behalf - and to supervise, if necessary, an orderly liquidation of its assets.

Roberts's remit was clear: to do a cool- headed valuation of the assets of the most problematic client, and to identify those abroad that could be sold off as near as possible to their purchase price. He knew that he himself had been been buying like a madman in America, getting his ravening clients properties to buy almost regardless of cost. When he delved into the paperwork, however, he found what he had suspected: that throughout the Eighties, hundreds of millions of dollars' worth of property had been bought in the United States on the strength only of the analysis done by the sellers' advisers.

When the crunch came, and Roberts's bank lost faith in its client's ability to continue to pay interest on the debt, the bank had only one objective: to make sure that it got its 60 per cent back, whatever the consequences. If that meant forcing the firm to sell off its best assets at fire-sale prices, so be it: the bank must come first. In a typical transaction, the bank would force its customer to sell off an asset it had bought only a year or two earlier for a price 20 or 30 per cent lower. The bank would get its money back with interest, but the customer would lose three-quarters of the 40 per cent of the price that it had put up itself. The long-term vision that Japanese banks were wont to boast of now seemed like a cruel joke.

Inside the M & A department, chaos reigned. Every few weeks, it seemed, the seating arrangement was changed and the department reorganised. One general manager left quietly, and was replaced by another. The staff in the lending department who had agreed to provide the funds for all those disastrous acquisitions were moved into different jobs. The staff was told that a travel moratorium had been imposed from on high, limiting all trips abroad to a week.

LAST YEAR, Christopher Roberts went back to the United States a wiser and slightly sadder banker than when he had arrived, but a rather more confident American. He had seen the Japanese banking sector and he knew it didn't work. It was time, he thought, to go to business school.

'Turning Japanese: The Fight for Industrial Control of the New Europe' by Tim Jackson is published by HarperCollins on 8 February at pounds 16.99.

(Photograph omitted)