Massive assets soften blow

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The Independent Online
Daiwa Bank is one of Japan's leading, and most conservative, commercial banks.

Based in Osaka, it ranks 41st in the world league table of big banks. Group assets totalling a massive pounds 125bn have allowed the bank to absorb the pounds 700m loss brought about by the unauthorised bond dealings of Toshihide Iguchi in New York, a luxury that the far smaller Barings merchant bank was unable to afford when confronted with the ruinous derivatives speculation of Nick Leeson.

Daiwa is what the Japanese refer to as a "city bank", which means it is essentially a retail, lending bank in a country which, like the US, has erected a legal wall separating commercial banks from those engaging in investment banking. Daiwa Bank has nothing to do with Daiwa Securities, which is one of the world's leading securities dealing houses.

Exceptionally, however, Daiwa Bank has become something of a hybrid, in that two years ago it acquired a troubled securities business. While announcing the bond trading scandal yesterday, Daiwa sought to reassure financial markets by raising its group pre-tax forecast for the year to March 1995 to pounds 800m from pounds 180m.

In common with all Japanese banks, Daiwa has been badly hit by massive bad debts in the property sector, which collapsed after a furious boom of indiscriminate lending. The bank has only been able to maintain its good profits forecast by putting off provisions for bad debt losses. Four Japanese credit unions and a major regional bank have had to be rescued by the authorities because of their bad debts, amidst nervousness in the financial markets.