alan abelson in barrons on the mafia, stock market and japan........
In Japan, apparently, the same desperate impulse to escape pitiless public view was evident last week, according to a piece from Tokyo in the New York Times. The people in question were a far cry, however, from those sinister types who've become so familiar to us. They were housewives, retirees and generally humble folk politely queuing up outside a branch of Yamaichi, the big securities firm that suddenly went belly up. Whatever the differences in their ages and circumstances, what they all shared were two peculiarities: (a) They had money lodged with Yamaichi, and (b) they hoped to get it out.
In truth, they also had in common a manifest desire to conceal their visages. Thus, so reported the Times, some of the Yamaichi customers waiting in line wore sunglasses, which, in contrast to their ubiquitous presence in this country, are not in widespread use in Japan. One woman covered her face with a big scarf. And many of the participants in the genteel run on the brokerage house buried their noses in newspapers or otherwise averted their faces from any stray gaze.
What prompted such preternatural modesty, it emerges, was not discomfort at having done business with a failed firm or at openly displaying deep concern for their capital. Instead, they were eager to avoid the embarrassment of having friends, neighbors, even family, learn that they had played the stock market, which, the reporter solemnly noted, is broadly viewed in Japan as "a sort of disreputable casino."
It would appear that a seven-year bear market that carries the leading stock average from 39,000 to 15,000 does have some kind of effect on perceptions.
Fact is, if anyone should be ashamed to show their faces, it's the wretches running Yamaichi. They played the tobashi game for all it was worth, and, in the event, it proved worth less than nothing, a lot less. Tobashi, in case you've forgotten, was (is?) the Japanese brokerage equivalent of "heads you win, tails I lose." Big firms like
Yamaichi recommended a stock to favored (read: big-bucks) customers and, considerate to a fault, as an extra little inducement, guaranteed said customers against loss. When the bubble was bubbling, no problem, everyone happy. But when the bubble stopped bubbling, a very large problem for Yamaichi and the rest of the generous crew.
The bubble, of course, went pop a long time ago, but it took Yamaichi all this while to go under -- in part, a tribute to the power of positive thinking and in part, a reflection of the fact that everyone in Japan is so very forgiving. But the recent troubles in Southeast Asia and the recent relapse in the Tokyo stock market were, alas, too much for even good manners to overcome.
Rumor has it that Yamaichi's hidden tobashi losses tote up to a tidy $6 billion. That would compare with the firm's stated equity of $3.5 billion. A fairly convincing imbalance (and, of course, there are a few other liabilities as well, while the equity number, as equity numbers somehow tend to be at strapped companies, is probably inflated). Incidentally, don't strain your eyes looking for that $6 billion item on Yamaichi's balance sheet; it's likely buried somewhere deep in the murky folds of subsidiaries.
Last week we noted the touching faith Yamaichi exhibited in its own stock, buying heavily right up to the last gasp and, in the process, helping to kite the stock from 65 yen to over 100 yen. After a brief pause for dissemination, the shares reopened for trading and, as Peter Du Bois notes in his International Trader column, hit one yen before rallying mightily to two yen. A little post-mortem research discloses that in its frantic efforts to stave off the inevitable for its stock, Yamaichi made an aggregate net purchase of roughly 50 million of its own shares in the final six days before the fall. That's known, in Japan as it is in the U.S., as throwing money down a rat hole.
The Japanese government's willingness to let Yamaichi slip beneath the waves after having earlier this month bid a similar sad goodbye to Sanyo, another waterlogged but smaller-fry securities outfit, was greeted warmly in the U.S by assorted economists and Wall Street pundits as reassuring evidence that Tokyo had shed its bad old paternalistic ways in favor of a shining new commitment to noninterference in the workings of the market. While they were at it, some of these cheerful ghouls felt impelled to urge Mr. Hashimoto, the prime minister, and Mr. Mitsuzuka, the finance minister, to go for broke and let the badly listing banks go under as well. The PM and his trusty financial aide, from all indications, however, have decided broke is not where they want to go.
Instead, they will use huge gobs of those trillions the thrifty citizens have squirreled away in postal savings accounts to keep the bigger improvident lenders afloat. It seems quixotic at the least for us to be sternly lecturing the Japanese on the impropriety of taking action to rescue its banks from a fate worse than debt in light of the massive government bailout of our own banking industry back in the late 'Eighties -- early 'Nineties. A regimen, as we recall, that included Mr. Greenspan's spoonfeeding the sick elephants with extraordinarily cheap credit and nurturing them with big spreads.
Japan, for all its real woes, unlike the U.S. half a dozen or so years ago, has fat reserves, is running a huge trade surplus and its consumers are not laden with burdensome borrowings. On the last score, as a keen observer of the Nipponese scene only half-facetiously suggested to us recently, Tokyo has been going about stimulating the economy in precisely the wrong way. Rather than lowering interest rates, they ought to remember that theirs is a nation of savers and try boosting rates. Some of the extra yen provided the populace by the increase in the interest on their deposits, not inconceivably, might find their way into stepped-up purchases of goods and services. And that way lies growth, the only real cure for what ails Japan.
Andrew Smithers, the savvy Brit whose uncommon insights we've passed along on occasion and who was the subject of Kate Welling's provocative Q&A last week on the great investment time bomb, otherwise known as derivatives, has long been less than sanguine on Japan. In his latest analysis, he focuses on the parlous state of the country's massive life-insurance industry.
Andrew notes that while the Japanese banks are grabbing the headlines, the life insurers are, if anything, in even worse shape. He questions whether, in the aggregate, their assets exceed their liabilities and he sees a high risk of further bankruptcies.
The failure of Nissan Life, he relates, was a real downer for the whole sector, causing policyholders to cancel existing policies and defer new purchases. In consequence, he believes the industry's assets will shrink in fiscal '97 for the first time in 50 years, and companies will have to sell assets to meet negative cash flow.
If policyholders continue to cash in at recent rates, he warns, the carriers will be forced to sell stock holdings and property, a fire sale that would add significantly to the spiral of asset price declines. And the excessive returns the insurers are offering on pension assets, he comments, are reducing the short-term risk of cash withdrawals, at the expense of increasing the long-term risk of bankruptcy.
Andrew says that hope for the industry rests on inflation, economic recovery and a buoyant stock market, and these, in turn, depend on a weak yen. Which is not the least of the reasons we're persuaded that, despite the frowns of Uncle Sam and the likely nasty impact on reeling Asian economies, a weak yen is what we'll get. |
