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Strategies & Market Trends : JAPAN-Nikkei-Time to go back up? -- Ignore unavailable to you. Want to Upgrade?

To: fut_trade who wrote (1718)	2/16/1999 2:34:00 AM
From: chirodoc	Respond to of 3902

Asia-Pacific February 16 1999 JAPAN: Signs of cheer ..account surplus, banks stabilizing, i think we just need some more deregulation and tax cuts for a bull market. curtis By Gillian Tett in Tokyo Hakuo Yanagisawa, Japan's minister in charge of financial reform, sat in a freshly decorated office in a Tokyo skyscraper yesterday and grinned. "Japan's bad loan problems for the largest banks will be completely resolved soon," he declared cheerfully, in the suite that two months ago became the headquarters of the Financial Reconstruction Committee (FRC), a new government body formed to implement banking reform. "We are making progress." Six months ago, the markets might have dismissed such optimism as empty talk. This week, Mr Yanagisawa's cheer is becoming a little more infectious. After the FRC declared on Friday that the largest banks had "voluntarily" asked for ¥7,450bn (£40bn) of public funds to expand their capital bases, bank shares rallied 1.2 per cent yesterday. More striking still, some western banks which were fierce critics of Japan's botched attempts at banking reform last year have greeted the plans with pleasure. Brian Waterhouse, analyst at HSBC Securities, the European investment bank, said: "With the government injecting substantial funds to recapitalise the sector, the debt nightmare is coming to an end." This uncharacteristic optimism stems from two factors. One is the sheer size of the ¥60,000bn in funds which the FRC now has at its disposal: in addition to some ¥25,000bn that can be injected into the banks' capital base, the FRC can also use up to ¥18,000bn to nationalise weak banks. But the second, more important, shift is that the government seems more determined to face up to the scale of Japan's eight-year-old banking problems. Mr Yanagisawa, 63, a former financial bureaucrat and now a politician, is proving unexpectedly pugnacious in pursuing this agenda. Though many of the banks have been reluctant to apply for funds, the FRC has privately threatened in recent weeks to declare some insolvent if they do not. Mr Yanagisawa is insisting that the amount requested by each bank must not only be sufficient to write off its remaining bad loans, but also cover the hidden losses on its equity portfolios. He has also demanded that the banks submit detailed, credible restructuring plans before receiving the cash. This stance has already led to a flurry of mergers and alliances, and prompted several large banks such as Daiwa to announce their withdrawal from overseas markets. But the FRC has warned that some banks will need to take even more radical steps. Though Mr Yanagisawa refuses to comment on any individual banks, he insists: "We will be monitoring closely the restructuring plans" in the weeks ahead. It remains to be seen whether this "restructuring" will prove as sweeping in practice as it sounds in theory. Mr Yanagisawa admits there are "some possible" risks that more bad loans could emerge in the system because of the current economic slowdown, or problems in overseas markets such as China. However, he acknowledges that the capital injections do not provide any guarantee that the banks will become competitive again soon. "There are several difficulties; one of them is how to get rid of the bubble-era problem loans." It remains unclear exactly how these funds will be injected into the banks. The banks themselves want to issue non-convertible bonds, to avoid any dilution of their shares. But the government is pressing some banks to issue convertible preference shares, which could be sold after two years. But after eight years of ignoring the scale of the banking problems, the emergence of this type of nitty-gritty debate is encouraging. Mr Yanagisawa may have to wait a while until the outside world shares his optimism. But his activities may yet provide one of the few signs of real reform in Japan this spring.