| BUSINESSWEEK ONLINE : OCTOBER 18, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- FINANCE
Will There Still Be Real Reform in Japan? (int'l edition) Japanese bankers are breathing easier with a new man in charge. But can Michio Ochi do the job? Japanese banking executives called it the reign of terror. It began when Hakuo Yanagisawa, 64, became Financial Reconstruction Minister in December last year. He and a small army of lawyers and accountants would grill Tokyo's patrician bank presidents relentlessly about the true state of their loan books and hectored endlessly about restructuring. And Yanagisawa was quick to break precedent and refer allegations of financial wrongdoing that his investigators turned up to prosecutors in Tokyo. ''He had a very harsh stance toward us,'' complains one executive at a major Tokyo trust bank. Yanagisawa probably saved Japan's banking system from collapse, but in the end his reform push was too hard--and he paid the price. On Oct. 5, he was sacked and replaced by Michio Ochi, 70, a former Ministry of Finance (MOF) bureaucrat and consummate ruling Liberal Democratic Party insider. The official spin: Yanagisawa merely got snagged in a revolving-door Cabinet reshuffle--a line local reform advocates and foreign bankers don't swallow. ''The guy took a bullet,'' says a Tokyo-based Western investment banker. ACID TEST. During his short-lived regulatory rampage, Yanagisawa sure created plenty of influential enemies. Most Japanese bankers loathed him. And many government officials resented the way the Financial Supervisory Agency, which reported to Yanagisawa, pushed the once all-powerful MOF aside as the command center for Japanese finance. He once boasted to BUSINESS WEEK, for instance, that ''Maybe I'm the only one who can promote restructuring in Japan's financial industry.'' If Yanagisawa was right, that means urgently needed Japanese banking and financial reform might easily run into the sand. However, Ochi has an early chance to prove him wrong and redeem the government's pledge that bank reform remains a priority. Nippon Credit Bank Ltd., a nationalized long-term lender that is staggering under $28 billion in bad loans, is now on the block. Morgan Stanley Dean Witter has been hired to sell it, which won't be easy, since Nippon is embroiled in prosecutions and lawsuits for allegedly cooking its books. Rumored interested parties include Chuo Trust & Banking and Mitsui Trust & Banking Co., which plan to merge next year, as well as J.P. Morgan & Co. and Kohlberg Kravis Roberts & Co. The foreign buying interest makes Nippon an acid test of Japan's commitment to reform. That's because Yanagisawa broke a big taboo on Sept. 28 by giving the nod to an international banking consortium led by New York-based Ripplewood Holdings to buy nationalized Long-Term Credit Bank of Japan in an $1.2 billion deal expected to be completed next year. In exchange, he cinched a promise from the group not to cut off LTCB's existing borrowers through 2003. But if the impending Nippon sale smells like a deal brokered to keep a superior foreign bid out, Ochi runs the risks of triggering an abrupt end to the foreign-driven rally in Japanese bank shares that has helped shore up the system since last fall. There is little doubt that Ochi has the smarts to judge how the markets perceive the sale. The worry is rather that he lacks his predecessor's in-your-face assertiveness and willingness to cut deals with foreigners. At his first press conference, on Oct. 5, Ochi vowed to treat prospective foreign buyers ''without prejudice and in a fair manner.'' However, he recently predicted publicly that Ripplewood ''would make a quick lunch out'' of LTCB--by stripping its assets and heading for the exits. Also, he has hinted that opening the floodgates to foreign capital isn't in Japan Ltd.'s interest. ING Barings Securities Japan analyst James Fiorillo wonders whether Ochi really has the fire in his belly to push for consolidation and ''promote the globalization of Japa-nese finance.'' All the same, some analysts argue that it's no bad thing to have a cooler head in charge of bank reform. Nomura Research Institute Ltd. Chief Economist Richard Koo, for example, says that while Yanagisawa's tough tactics helped to make ''bashing bankers a national sport,'' they were out of place because the estimated $600 billion in bad loans and systemic risks have made Japan's banks so fragile. INSURANCE FIX. And, despite his lower profile, Ochi has been no slouch in the past. Back in 1995, he helped fashion a $6 billion rescue of seven insolvent jusen, or housing loan corporations. Then, last year, he played a key role in crafting legislation to set up a $570 billion reserve to pump capital into Japan's banks and replenish the nation's deposit insurance scheme. Now, Ochi's touted financial acumen will be crucial in cutting through the plethora of accounting gimmicks and asset shuffling that are endemic among dozens of weak regional lenders and credit cooperatives. Some 30 of them have failed or been taken over by the government so far this year. And Ochi doesn't have much time to sort them out because in April, 2001, the government is set to end its unlimited guarantee on all bank deposits. In the future, it will set an $86,000 limit per individual account instead--running the risk that it might trigger a large and destabilizing shift in deposits from weak lenders to the strong. At the same time, Ochi has to start work on fixing Japan's giant life insurers. The firms are caught in a painful squeeze between large-scale policy cancellations and their present inability to generate big enough returns from invested premiums to cover customers' claims. More troubling still is that another spike in corporate bankruptcies could come as the government implements plans to rein back generous lending programs to smaller companies. With Japan's world-class budget deficit, that day is coming sooner rather than later, raising the specter of another surge in nonperforming loans on bank balance sheets. So Ochi's new job is hardly a walk in the park. Yanagisawa's brief tenure gave global investors and world central bankers the first glimmerings of real hope that Japan was finally serious about fixing its crippled banking system. It would be tragic if Ochi were now to betray that legacy. By Brian Bremner in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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