Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (4419)	6/11/1998 9:17:00 PM
From: Constant Reader	Read Replies (1) \| Respond to of 9980

Zeev: I found one of the articles I was thinking of. I meant to reply to your note but have somehow managed to post it on the thread! Oh, well - this at least is a better explanation than the one I gave Steve! It seems that it all depends on where one thinks they bought their holdings. Take care. Analysts Worry Japanese Move To Ease Credit Crunch Could Backfire By Takeshi Takeuchi 12/24/97 Dow Jones Online News TOKYO -(Dow Jones)- Japan's decision Wednesday to postpone stricter capital-adequacy standards for Japanese banks operating domestically may turn out to be another attempt at a quick fix for the economy that backfires, some analysts and bank officials said. Responding to increasingly desperate cries from Japanese small and medium-sized businesses for more credit, the Ministry of Finance announced a one-year delay in its so-called prompt-corrective-action program, which is intended to spur Japanese banks to improve their capital to asset ratios ahead of scheduled financial deregulation. Banks operating domestically now will have until April 1999 rather than April 1998 to bring their capital-asset ratios up to 4%. Banks operating internationally still have to reach a higher 8% target by April 1998. The corrective-action steps - which would give the finance ministry the right to suspend operations at banks which don't make the grade - are thought to be partly to blame for the current credit squeeze. "The decision was out of political necessity rather than economic need," said Susumu Takahashi, a chief economist at Japan Research Institute. He added that in the long run, the move could be a mistake. And a Bank of Japan official, speaking on condition of anonymity, said, "The move is only postponing the real problem ... the weak international competitiveness of Japanese banks." The central-bank official added that "by delaying an improvement of the capital-adequacy ratio, Japanese banks may not be able to provide various financial services that U.S. and European banks can in the coming financial-deregulation age." Amid mounting criticism of the government's management of the economy, a major food trading company and a small brokerage company collapsed over the past week. The presidents of both companies cited reluctance by banks to lend as a reason for their straits. However, lending by the domestic banks affected by Wednesday's change amounts to only 30% of the 482 trillion yen ($373 billion) in loans to Japanese companies by all Japanese banks, Takahashi said. "Some small and medium-sized companies certainly may benefit from the postponement, but a favorable effect may be limited," he added. Takahashi echoed the Bank of Japan official's comments, warning that "Japanese banks may face various restrictions in the future even in lending to domestic borrowers without a marked improvement in their capital-adequacy ratio." Bankers, however, take issue with the idea that the tighter capital norms are causing a lending slowdown. "The so-called 'credit squeeze' as a result of the prompt corrective action is somewhat overblown," said a lending official at one large bank. Japanese banks typically make loans against the value of property and building assets, unlike U.S. and European banks, which lend against a borrower's prospective earnings. "With the drastic decline of asset prices since the beginning of the 1990s, the volume of lending has also declined naturally, but not to the extent that healthy Japanese corporations would have trouble in conducting day-to-day businesses," the banker said. While delaying the tighter controls, the Finance Ministry also said it is considering introducing a new way to calculate Japanese bank capital in the ratio equation. Under present rules, banks must value their stock holdings at either the purchase price or the current price, whichever is lower. However, the ministry said it is considering a transition to using only current-price valuations for some stocks, which is expected to give a huge boost to bank capital since banks are believed to have purchased most of their stocks at prices lower than current levels. The method may help banks clear the capital-adequacy ratio required by the Bank of International Settlements by increasing the value of capital on the surface, "but the real problem Japanese banks have to tackle is their asset part," the central-bank official said. Japanese bank assets now include bad property loans made during the so-called bubble economy of the late 1980s. The official estimate of problem loans stands at around 27 trillion yen, but private economists say bad loans are at least a few times larger if realistic counting methods are used. "Without dissolving the huge bad loans, Japanese banks cannot achieve real international competitiveness," the central-bank official added.

To: Zeev Hed who wrote (4419)	6/11/1998 11:49:00 PM
From: Steve Tauscher	Read Replies (1) \| Respond to of 9980

Hello Zeev, I've followed many of your posts in the semi-equips. Thanks for your reply. It wasn't clear to me in your post whether you remember a specific change in policy that we mis-interpreted or that you do not remember a change in policy that we're refering to. Your post indicates that equities are (and always have been?) valued at market prices, at least on a quarterly basis. But I do vaguely remember a policy change earlier this year involving "book values of equities". And prior to this, I had heard that lower equity prices were a concern (at the levels you gave and for the reasons you indicated). I remember (again imagined?) the newswire because I thought it was a very convenient thing for them to do in an environment of falling equity prices! However, as I said I have been suffering from "old-timers" disease <G>. I will try to find a source. Best regards, Steve T