Japan brokers face deepening crisis for face

Yamaichi Securities, one of Japan's leading brokerages, celebrated its 100th birthday this year. But it has a lot of work to do if it wants to celebrate many more.

Yamaichi, and the rest of Japan's once-mighty financial industry, face a deepening crisis triggered by rising borrowing costs, plunging stock prices and pressure to speed up the disposal of trillions of yen in bad loans.

The stockbrokers lost pounds 40m in the first half, while a scandal over illegal pay-offs to a gangster and concerns that it may have hidden financial problems sent the stock plummeting on Friday.

While big institutions - particularly foreign fund managers - were selling, what most worried analysts was the selling by local banks and other institutional investors linked with Yamaichi through Japan's system of cross-shareholdings. In that system, companies hold each other's stocks to keep them out of unfriendly hands - unless there appears to be a very strong reason to sell them.

And there are strong reasons to sell Yamaichi, analysts say, despite the company's denial it has cash-flow problems. Prosecutors allege it paid gangster Ryuichi Koike pounds 800,000 to stop him making a stink at the company's annual shareholders' meetings. Eleven top executives, including the president and the chairman, resigned in August. The stock has dropped by two-thirds, from 280 yen to below 100 yen, since then. It will probably be barred from certain types of business, such as trading stock on its own account, for several months.

On top of that, Yamaichi faces all the same problems as the rest of Japan's brokers: a more competitive market by 2000, when Japan says it will let banks compete with stockbrokers; and a moribund market since the collapse of the speculative Bubble Economy seven years ago.

"The turmoil in brokerage shares reflects an anxiety about the health of the financial system," said Shigeharu Shiraishi, director at Yamaichi International Capital Management. "This is triggering an all-round rout."

The Nikkei index has fallen to its lowest level since July 1995 and the brokers' troubles have spilled out to hurt the market.

Sanyo Securities, a medium-sized brokerage, filed for bankruptcy just last week, the first publicly traded Japanese brokerage to do so. As the government prepares for deregulation, it is likely to let more brokerages go under. Before, it might have tried to keep them afloat to protect the stock market.

The government has done nothing to staunch the damage so far, although a senior finance ministry official last week acknowledged that the so- called "Japan Premium" - the higher interest foreign banks charge Japanese lenders to borrow dollars - has tripled in recent weeks. That's made it costly for Bank of Tokyo Mitsubishi, Sumitomo Trust & Banking and Japan's other big nationwide and regional lenders to raise funds.

Those borrowing costs may rise even more after two credit-rating services, Standard & Poor's and IBCA, announced on Friday they were cutting the ratings of most of Japan's lenders because of bad-loan problems.

A slumping economy has led both companies and consumers to cut back on spending. Bank lending has fallen in 42 of the last 44 months.

The heart of the banks' problems is their estimated pounds 70bn in bad loans. Most of the debt stems from the excesses of the 1980s, when banks rose to become the world's largest lenders.

That bad debt is likely to swell. Bankruptcies are soaring to record levels at home, and Asia's turmoil is heightening the risk of defaults on the continent, where Japanese banks have $265bn (pounds 185bn) in outstanding loans. "Japanese banks are in a tight spot," said Koyo Ozeki, director of IBCA in Tokyo.

While the banks have been trying to dispose of their bad loans for years, the finance ministry is stepping up the pressure. By 1 April, banks will have written off all loans to borrowers who are unlikely to be able to repay. Failure to stick to the rules could bring trouble from auditors and jeopardise a bank's credit rating.

That prompted Bank of Tokyo-Mitsubishi to announce it would write off 1 trillion yen in bad loans, taking a loss this year. In a bid to replace capital drained by bad-loan write-offs, banks like Sakura Bank and Tokai Bank have sold new stock. Yet with the stock market sliding, banks cannot afford to depress prices much more by increasing the number of outstanding shares, and are now having to slash assets.

One way to do this is by repackaging loans and selling them off as securities, a path chosen by Fuji Bank, the most aggressive asset-trimmer among the big commercial banks.

Banks with low levels of capital adequacy stand a greater risk of being socked with a weak credit rating, making them more liable to be charged higher interest rates when they try to raise money abroad.

Sales of cross-held shares are starting to rise, threatening a further fall in the stock market. This year, Long-Term Credit Bank of Japan could sell as much as 350 billion yen in cross-held shares, said Makiko Aizawa, a bank analyst at Salomon Brothers Asia.

"The sale of cross-held shares could still be a blessing, making lenders leaner and more profitable," said Elizabeth Daniels, director at Morgan Stanley Japan. "Since the market is down, [banks] have got to make some tougher choices. That is possibly a good thing."

Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
Sport
tennisLive: Follow all the updates from Melbourne as Murray faces Czech Tomas Berdych in the semi-final
News
Sir David Attenborough
people
PROMOTED VIDEO
Life and Style
Young girl and bowl of cereal
food + drink
News
Comic miserablist Larry David in 'Curb Your Enthusiasm'
peopleDirector of new documentary Misery Loves Comedy reveals how he got them to open up
Sport
football
News
i100
Life and Style
Virtual reality headset: 'Essentially a cinema screen that you strap to your face'
techHow virtual reality is thrusting viewers into frontline of global events and putting film-goers at the heart of the action
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
Arts and Entertainment
tv
News
i100
Environment
Dame Vivienne Westwood speaking at a fracking protest outside Parliament on Monday (AP)
environment
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

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness