A tale of two credit unions rocks Japan

A former Bank of Japan governor and cabinet minister are enmeshed in a double bankruptcy investigation. Peter McGill reports from Tokyo

The government-backed rescue of two small bankrupt Tokyo credit unions - which merely raised eyebrows when it was hastily announced in December - is developing into a financial and political scandal in Japan.

Every day brings fresh allegations of illegal conduct by the Tokyo Kyowa and Anzen credit unions, now the subject of criminal investigations, and of deeper associations with some of Japan's most august institutions. Tokyo Kyowa lent 35 times the legal limit to one customer, a business group headed by a man who was also chairman of Tokyo Kyowa until last December, and, with Anzen, it allegedly offered under-the-table kickbacks of 5 per cent for high-interest new deposits in a desperate bid to conceal mounting bad loans.

It is also alleged by the Mainichi newspaper that the Long Term Credit Bank deliberately funnelled, through affiliated "non-bank institutions" deposits and equity of Y39.3bn (£254m) to Tokyo Kyowa to conceal a capital stake larger than the legal maximum.

In Japan it is inconceivable that the reckless practices of the two credit unions went unnoticed for years by the financial establishment, especially by the Bank of Japan and the powerful Ministry of Finance, which appoints the central bank governor.

One early victim of the scandal has been the reputation of Yasushi Mieno, the former Bank of Japan governor credited with pricking the economic bubble in Japan in the late 1980s.

He agreed to the rescue plan, shortly before his retirement and less than six weeks after publicly expressing support for allowing financial institutions to fail if there was no "systemic risk".

The case has already prompted outraged newspaper editorials and the Japanese parliament is demanding a list of depositors in the two credit unions, and may summon witnesses to testify.

Last week's swift resignation of Toshio Yamaguchi, a former cabinet minister, as deputy secretary-general of the main opposition New Frontier party, following reports that the two credit unions lent Y4.05bn to companies run by relatives, including two that manage golf courses, has only whetted the political thirst for vengeance.

In essence the scandal revolves around the flamboyant speculator Harunori Takahashi, a long-time associate of Mr Yamaguchi and other conservative politicians, who was known until a few years ago as "the most leveraged man in the world".

His EIE International group of companies appear to have further bled Tokyo Kyowa - of which he was former chairman - and Anzen, formerly chaired by a close friend, after the Ministry of Finance gave its blessing in 1993 to the cutting of further credit from his main bank, LTCB, and others including Mitsui Trust and Banking, Sumitomo Trust, Mitsubishi Trust, and Nippon Credit Bank.

While the bubble lasted, these banks had helped to fund EIE's break-neck expansion in hotels, resorts, and other property around the globe.

These include the sandstone Bond University on the Gold Coast of Australia developed with since-jailed tycoon partner Alan Bond, and a floating hotel moored at the port of Ho Chi Minh City in Vietnam.

This support continued even after Mr Takahashi had been investigated in Japan and Australia by securities regulators.

LTCB and Mitsui Trust had latterly placed their own executives on the board of EIE International in the hope of restoring financial discipline and recovering some of their investments, but gave up in 1993.

Japanese observers tend to find such disclaimers as unconvincing as the story of how, after leaving a job at Japan Air Lines, Mr Takahashi leveraged an electronics importing company he acquired in 1977, Electronics and Industrial Enterprises, into a multi-billion global property giant on the basis of personal "genius".

This month's issue of Tokyo Business Today magazine suggests LTCB's recent willingness to write off Y90bn it lent is due to EIE's long-reputed links to Japanese yakuza gangsters.

After property sales around the world to reduce its debt burden, not much appears left of the EIE empire. However, the Japanese taxpayer is being left with a large bill, some Y20bn from the Bank of Japan, with an equal amount from private banks it has "persuaded" to participate, to clean-up the mess at Tokyo Kyowa and Anzen caused by private irresponsibility, largely stemming from Y66.4bn lent without proper security to EIE.

"Why should public funds be spent salvaging minor credit unions that have failed because of licentious operations?" the Mainichi asked.

The paper demanded an investigation into rumoured relationships between Mr Takahashi and "certain influential politicians, senior bureaucrats and monetary officials".

News
Michael Buerk in the I'm A Celebrity jungle 2014
people
Arts and Entertainment
Avatar grossed $2.8bn at the box office after its release in 2009
filmJames Cameron is excited
Voices
File: David Cameron offers a toast during a State Dinner in his honour March 14, 2012
voicesAnd nobody from Ukip said babies born to migrants should be classed as migrants, says Nigel Farage
Arts and Entertainment
Stik on the crane as he completed the mural
art
PROMOTED VIDEO
News
Happy in his hat: Pharrell Williams
people
Arts and Entertainment
Stella Gibson is getting closer to catching her killer
tvReview: It's gripping edge-of-the-seat drama, so a curveball can be forgiven at such a late stage
News
Brazilian football legend Pele pictured in 2011
peopleFans had feared the worst when it was announced the Brazil legand was in a 'special care' unit
News
i100(More than you think)
Sport
Brendan Rodgers seems more stressed than ever before as Liverpool manager
FOOTBALLI like Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
News
The number of GP practices with 10 or more doctors has grown by 75 per cent
science
News
ebooksNow available in paperback
News
Phyllis Dorothy James on stage during a reading of her book 'Death Comes to Pemberley' last year
peopleJohn Walsh pays tribute to PD James, who died today
Sport
Benjamin Stambouli celebrates his goal for Tottenham last night
FOOTBALL
Life and Style
Dishing it out: the head chef in ‘Ratatouille’
food + drinkShould UK restaurants follow suit?
News
peopleExclusive: Maryum and Hana Ali share their stories of the family man behind the boxing gloves
Arts and Entertainment
John Hurt will voice Prince Bolkonsky in Radio 4's War and Peace
radioRadio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Argyll Scott International: Service Desk Analyst

£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

Argyll Scott International: 2x Service Desk Analyst

£20000 - £22000 per annum: Argyll Scott International: Service Desk Analyst Re...

Recruitment Genius: Senior Execution Trader

£30000 - £250000 per annum: Recruitment Genius: A global Rolling Spot FX, Comm...

Citifocus Ltd: ACA - Financial Reporting

£Attractive Package: Citifocus Ltd: Chartered accountant (ACA or CPA), must be...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game