[A-List] Japan: financial crisis

["Michael Keaney" <michael.keaney@xxxxxx>]

'Walking dead' will drive Japanese bank into state hands

Charlotte Denny in Tokyo and Jonathan Watts
Thursday November 14, 2002
The Guardian

The Japanese government will be forced to nationalise at least one of the
country's four biggest banks by the end of the year, to prevent the crisis
in the financial sector tipping the country back into recession, a senior
business leader warned.

Tougher solvency standards advocated by the new financial affairs minister,
Heizo Takenaka, will push several main lenders into bankruptcy, Hiroshi
Okuda, chairman of the Japanese Business Federation said in an interview
with the Guardian and other UK newspapers.

"Of the four major banks, two are very solid but the other two are fragile.
I believe that most probably in December [bankruptcies] may be seen."

A decade of lending to unprofitable companies has saddled Japan's banks with
worthless loans estimated at more than 52 trillion yen (£273bn), around 40%
of GDP. Mr Takenaka has promised to clean up the bad loans, but his scheme
has come under fire from politicians and bank managers, who fear it may lead
to bankruptcies and job losses that could undermine the nascent recovery.

Quarterly output figures released by the government yesterday suggest that
growth is already faltering. Japan's economy expanded by 0.7% from
July-to-September, down from 1% in the previous three months. For the first
time in a year, the government lowered its assessment of the economy as weak
overseas markets hit exporters and deflation of 1.2% created bad loans
faster than banks are able to write them off. With yesterday's slide of the
Nikkei stock index to its lowest level in 19 years, the stock portfolios
held by banks are now worth about a fifth of their value in 12 years.

Faced by this combination of rising liabilities and declining assets,
investors are abandoning Mizuho Holdings - the world's biggest bank - and
UFJ, another of the big four institutions, driving their share prices down.

The bad loans saga has dragged on for years despite a series of government
rescue schemes each touted as the solution to the crisis. Banks have
continued lending to dud companies fearing that if they cut off funding, the
companies will collapse so exposing the true extent of the financial
sector's worthless lending.

Mr Takenaka's reforms are expected to lead to the collapse of many of these
so-called "zombie" companies. Yesterday Mr Okuda said that the failure of
some of the largest firms among the walking corporate dead would be a sign
that the government was serious this time about reform.