Cheryl,
could you check this out and summarize any key points.
A bit out of my area, but I'll give it a shot....
1. Apparently Credit Suisse Financial Products (CSFP) has been helping Japanese companies, especially banks and other financial institutions hide their losses/bad debt through the use of derivatives. The Financial Times spoke of this as "'window dressing' the bank's accounts". I really don't understand derivatives; and this sentence is redundant since it contains the words "I don't understand" and "derivatives".
2. Apparently what CSFP has been doing is perfectly legal in Japan and is in accord with what seem to be unique Japanese accounting principles (at least according to PEI's Martin Armstrong). To the best of my understanding hiding losses in the banking industry has more or less been in line with Japanese governmental policy -- at least until recently.
Enter Japan's Financial Supervisory Agency (FSA), the "banking watchdog".
3. FSA, however, has detained the former president and the chairman and 4 other former executives of Nippon Credit Bank for "allegedly 'window dressing' the bank's fiscal 1997 accounts...concealing about...$661m of bad loans on the bank's accounts." These arrests follow last month's arrests of several executives of Long Term Credit Bank of Japan for similar charges.
4. It's not clear to me whether CSFP had anything to do with these particular banks, but it is alleged that CSFP helped a large number of financial institutions in Japan.
5. FSA began investigating the activities of CSFP -- as well as Lehman Brothers and Creswell. Some of the CSFP employees apparently panicked and shredded a bunch of documents ("obstructed regulators"). CSFP has apologized for this activity and some heads rolled or at least there were "reassignments". CSFP is also charged with conducting "unsuitable" trades to help Japanese clients hide losses.
6. FSA is considering revoking the license of CSFP and of some other Credit Swisse subsidiaries. A hearing was held on July 23 (originally scheduled, I think, for July 19) at which time CSFP was to present their side of the case.
7. FSA has yet to make a determination regarding what penalties, if any, to assess. That determination is expected next week.
So who besides CSFA employees and investors gives a hoot?
Martin Armstrong's argument is that Credit Swisse did not break any laws and that punishment for engaging in legal activities is capricious and destroys the "rule of law" in Japan. This, he asserts, could (and probably would) result in a swift departure from Japan of all foreign banks -- thus exacerbating Japan's current staggering financial difficulties.
As a significant sideline, the possibility of an economic recovery in Asia -- absent a recovery in Japan -- seems remote.
Cheryl, this is the best I can do with this topic. Wanna talk about sleep apnea? <g>
Regards,
O. H. |
