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To: Les H who wrote (933)	11/7/2001 12:30:39 PM
From: Les H	Read Replies (1) \| Respond to of 29596

Giving Up On Japanese Banks By Mark Thompson, AsiaWise asiawise.com 7 Nov 2001 13:46 (GMT +08:00) Some foreign funds loaded up on Japanese banking stocks during the summer. The shares would take off, or so the thinking went, once the Japanese government stopped dithering and committed public funds to help relieve them of their staggering load of bad debts. The government appears to have stopped dithering. The final draft of a structural reform plan approved October 26 expanded the scope of the government-affiliated Resolution and Collection Corp. (RCC), allowing it to buy bad loans from banks and attempt to rehabilitate worthy debtor companies. The Mainichi Shimbun put a yen figure on the funding commitment in a report published November 5. The RCC will get a "corporate rebuilding fund" of between 400 and 500 billion yen, which will be sufficient to take several trillion yen in non-performing loans off the banks' books, the newspaper reported. Whatever the final figure, October's long-awaited news hadn't exactly fired up the banking sector. Quite the contrary, Japan's four largest banks, which were already at or near 52-week lows, faced further losses of between 4.8% and 8.5% last week and still more heavy selling at the start of this week. The same fund managers who were adding to their positions in Japanese banks through the summer may have been among those who have been selling in the past month, judging from their most recent portfolio reports. Todd Jacobson, manager of the $49 million Credit Suisse Warburg Pincus Japan Growth Fund, for one, was high on banks in an August 3 commentary. Sentiment toward the sector "has become negative to the extreme," he declared, adding that at their "bombed out levels," the potential for further declines in bank stocks was "muted." By the end of the September quarter, diversified financial services and banks were the top two sectors in the fund. Banks accounted for 14% of assets and three of Japan's big four -- Mitsubishi Tokyo Financial Group Inc., UFJ Holdings Inc. and Sumitomo Mitsui Banking Corp. -- were in the fund's top 10 holdings. Diversified financials, led by Nomura Securities Co., Ltd., accounted for another 15% of assets. Jacobson's enthusiasm for banks, however, was flagging. Having grown "increasingly impatient with the lack of progress" on addressing Japan's decade-long banking crisis, he had "recently been forced to reduce our position in the banks," he wrote in a commentary on the quarter. By late October, as word of a bold new mission for the RCC began to circulate, Jacobson remained unimpressed. Influential forces within the government "do not want the RCC, and therefore taxpayers, to incur possible losses as they purchase properties from the banks," he wrote in an October 26 report. "This, of course, is precisely why, despite already five years of operations, the RCC has failed to function effectively as a clearing mechanism." Fund managers haven't yet commented publicly on the late-breaking word that the government is willing to funnel hundreds of billions of yen to the RCC through the state-owned Development Bank of Japan. But the market as a whole appears to be highly skeptical that the news amounts to a real breakthrough, judging from the heavy selling of bank stocks early this week. Fund managers have made it clear in their recent reports that words alone carry little or no weight. As Roger Ellis, head of the Pacific Regional Group for Jardine Fleming, put it in an October report, the Junichiro Koizumi administration "has sorely tried the patience of investors." The government's pronouncements on clearing up bad debts in "the banking sector continue to lack substance. Thus, we do not believe it is the time to be optimistic towards the Japanese equity market," he wrote. Adding to the uneasiness about the banking sector is a growing concern about the unknown extent of the bad-debt problem. Credit Suisse Asset Management (CSAM) estimated in early summer that the overhang of bad loans in Japan's banking system ranged anywhere from $90 billion to $250 billion. But the bankruptcy in September of Mycal, a large supermarket chain, and Nippon View Hotel Co., raised the specter that the highest guess might not be high enough. Neither company's bankers had classified the debts as "unrecoverable" but only as "requiring caution." A report on nonperforming loans in Asia just released by Ernst &Young will fan fears that the problem is far worse than officials are letting on. By the accounting firm's reckoning, 27% of all loans in Japan are nonperforming, compared with a reported bad-loan rate of 11.5%. That discrepancy is as disturbing as the high estimate itself. As CSAM recently observed, "Without a credible official figure for total non-performing loans to work with, it's easy to assume the worst."