Saturday, December 02, 2017,10:44
20 years after Yamaichi crisis, financial world has changed
By The Japan News/ANN
Saturday, December 02, 2017, 10:44 By The Japan News/ANN

Shohei Nozawa (left), President of Japan's Yamaichi Securities Co. Ltd., attends a news conference at the Tokyo Stock Exchange,  June 02, 1999.  (JIJI PRESS / AFP)

TOKYO - Nov 4, 2017 marked 20 years since the voluntary closure of Yamaichi Securities Co., which was one of the four biggest securities companies in Japan. Its failure, which resulted from deteriorating financial conditions and credibility, shed light on how serious Japan’s worst financial crisis since World War II was. After that, realignment of companies and disposal of nonperforming loans have progressed in the financial sector, and the environment surrounding the sector has changed significantly.

In Tokyo’s Kanda district, there is a low-profile company with the same name: “Yamaichi Securities Co.” It was established by Masahito Tachikawa, 73, a former employee of the defunct securities firm. Hoping to inherit the tradition of the firm that excelled in businesses targeting corporations, Tachikawa changed his company’s name to the current one in 2014. “Some customers remember the name and support us in the spirit of rooting for the underdog,” Tachikawa said.

“It’s not our employees’ fault,” Shohei Nozawa, then president of Yamaichi said at a press conference on Nov 24, 1997, after it decided to voluntarily close down the business. His tearful public apology remains in many people’s memories.
The cause behind the company’s bankruptcy was a type of misconduct called “nigiri” — in which Yamaichi managed clients’ assets while promising them that it would secure yields. The collapse of the bubble economy led to nosediving stock prices, resulting in Yamaichi incurring ballooning losses due to the nigiri practice. However, Yamaichi concealed the losses by transferring them to other companies with different accounting periods. The practice was called “tobashi.”
Tetsuro Ii, 57, president of Commons Asset Management, Inc. who worked at the securities sales division of Yamaichi, said: “There was an atmosphere within the company that the central government would rescue us. Times have changed. Financial institutions are required to be self-sustaining.”

Coupled with the failure of Hokkaido Takushoku Bank, which took place one week before, the collapse of Yamaichi symbolized the end of the myth that major financial institutions would never fail.

“We were not sure whether a bank with which we transacted funds today would exist tomorrow. I couldn’t take my eyes off the news until midnight every day,” said Yuki Sakurai, 65, director and managing executive officer of Fukoku Mutual Life Insurance Co., recalling that time, when he worked at the asset management division.

The crisis continued. In 1998, the Long-Term Credit Bank of Japan (now Shinsei Bank) and the Nippon Credit Bank (now Aozora Bank) both went bankrupt. The government injected taxpayers’ money into these banks to dispose of nonperforming loans and enhance their fiscal soundness, stepping up efforts to contain the financial crisis.

The injection of taxpayers’ money enabled them to boost their capital bases, making it easier to carry out the disposal of nonperforming loans. “We could speed up fiscal reconstruction,” Aozora Bank President Shinsuke Baba said. However, it put a great burden of cost on the people, as the total amount shouldered by the public for the failures of these financial institutions was about ¥10.4 trillion.

RETURN OF THE BUBBLE?

Today, corporate performance has recovered. The days when financial institutions were busy disposing of nonperforming loans — the main cause for the crisis — have become a thing of the past.

The Bank of Japan has been continuing large-scale quantitative easing with the aim of lifting the country out of deflation, pouring huge amounts of money into the market. On Nov. 9, the 225-issue Nikkei average retook 23,000 for the first time in about 26 years. Land prices for some areas in Tokyo’s Ginza district surpassed the levels marked during the bubble era. Some observers see signs of fresh bubbles.

IS THERE A RISK OF ANOTHER FINANCIAL CRISIS?

Naohiro Yashiro, a specially appointed professor at Showa Women’s University who is well versed in economic policies, said: “Overcoming deflation means creating a mini bubble. We have better systems, such as the protection of depositors and workers, than those of 20 years ago, but no one can forecast a financial crisis. It could erupt at any time.”