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To: Rational who wrote (8988)	11/22/1997 5:15:00 PM
From: Joan Osland Graffius	Respond to of 18056

Sankar, >>A very important macro-economic development (as I envision) may be: the failing Japanese, Korean and other Asian banks have to liquidate their assets. IMO, these countries have a systems engineer job on their hands. They need to look at all their options and make cost benifit trade-offs before any decisions are made. Political ramifications will be part of the decision making therefore the best technical decision may not be selected. I have been thinking about their options and what trade-offs they have. Nothing I can think of is clearly a best technical and/or political decision. Joan

To: Rational who wrote (8988)	11/22/1997 5:15:00 PM
From: John Dally	Respond to of 18056

Hi Sankar, Here's an excerpt from an article in the WSJ from a week ago Friday, (November 14): Beginning next week, Japan's top 20 lenders will release earnings for the six months ended Sept. 30 under this country's hitherto murky disclosure standards. But the banks will also forecast what their books will look like next March, when Japan is scheduled to adopt the same stringent reserve standards used by banks in the U.S. The new rules will require banks to set aside capital against the risk of default for even healthy loans, a prudent measure that unfortunately will cost banks a lot of money. Sumitomo Bank, for example, said the stricter reserve requirement would force it to record a loss of more than $3 billion for the year ending March 31. When the bank cut its earnings forecasts last month, credit-rating agency Standard & Poor's immediately lowered the bank's long-term credit rating to A-minus from A, affecting more than $8 billion in debt. The earnings season is likely to flush out other problems. Hokkaido Takushoku Bank Ltd. was forced to withdraw from overseas markets this year because its write-offs depleted capital to the point where it couldn't meet internationally agreed-upon reserve requirements of 8% of loans and other so-called risk assets. Now, with the bank's balance sheet deteriorating, its officials won't comment on rumors that the bank will need an emergency equity injection to meet even Japan's looser 4% capital requirement for banks that only operate domestically. Investors will know more when the bank releases earnings next week. The ultimate solution, many say, lies in a move that Japan's regulators and politicians have desperately sought to avoid: The injection of trillions of yen in public money. As the Nikkei average was sliding this week, eroding the value of banks' share portfolios, the enormously unpopular subject suddenly surfaced again in Parliament. Kimio Yamaguchi, the director of the banking bureau at Japan's Ministry of Finance, set the stage for the unpopular move: "The public needs to debate this topic thoroughly," he said. And if Japan's politicians work up the courage to move forward, then it finally may be time to buy. From today's REUTERS newswire: More clouds of doubt gathered over Yamaichi on Saturday, when a Finance Ministry official said that suspicions were growing that the brokerage had vast off-balance sheet liabilities exceeding 200 billion yen ($1.58 billion). Atsushi Nagano, head of the ministry's securities bureau, told a news conference that the liabilities were thought to include illegal "tobashi" or "pitching" deals, in which brokerages temporarily shift investment losses from one client to another to help a favored customer avoid reporting losses. Full story: yahoo.com It seems to me that the new and imminent accounting rules are flushing out the "off-balance sheet liabilities" of Japanese financial institutions hitherto conceiled by Japan's "murky disclosure standards." Now that these institutions are being forced to "open their Kimonos," -g- is it reasonable to expect some (or many?) big surprises? Thanks for your contribution and insight! Best regards, John.