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DPJ to push for sale of Shinginko Tokyo?

Yesterday, Bloomberg published a piece quoting Yasunori Sone, a political science professor at Keio University in Tokyo, as saying, “The DPJ, which takes a different stance than the governor, will liquidate Shinginko Tokyo…It was clear from the beginning that its business model didn’t work.”

The second part of that statement is very true. Troubles at the publicly funded bank have been documented here before. As a quick reminder: Read more

Aozora Bank raided: Insider trading suspected

The Nikkei has just reported that Aozora Bank has been raided by the Securities and Exchange Surveillance Commission on “on suspicion that an employee of the bank traded shares using inside information obtained at work.” The Nikkei is reporting that the employee works in the loan division and “may have” traded shares of more than one company based on inside information.

In connection with our recent speculation that the Shinsei/Aozora merger might not happen, it looks like a graceful (ie, face saving) exit strategy has made itself available.

Shinsei, Aozora merger still not announced

Back on April 25, the Nikkei announced that Shinsei Bank and Aozora Bank were discussing a merger, citing “a person familiar with the matter.”

Then, on May 11, the Nikkei reported that the two banks had “reached a basic agreement to start procedures by summer 2010 to merge their operations under a holding company.” The article went on to speculate that the merger might have been announced by the end of May: Read more

Nikkei Index lost 35% in FY2008; Market caps battered

At the opening of fiscal 2008, the Nikkei Stock Average stood at 12,525.54 points. After dropping 126.55 points yesterday, the Nikkei closed at 8,109.53 points for a 35.3% drop over the financial year. This morning’s Nikkei reports that corporate pension funds were heavily battered in FY2008, and estimates losses at 17.4%. Banks have also been affected by the downturn in share values, as all three megabanks (Mitsubishi UFJ, Mitsui Sumitomo and Mizuho) are looking at sinking into the red for FY2008.

In another article, the Nikkei points out that a year ago, 82 Japanese firms possessed a market capitalization of one trillion yen or more. As of this morning, that figure stood at 49 - for a 40% decrease.

Toyota, the largest Japanese firm by market cap, saw a 37.2% drop, while Mitsubishi UFJ saw a 40.6% fall, and both Mizuho and Mitsui Sumitomo suffered drops of over 45% in their market capitalizations.

Behind the drops in market caps, according to the Nikkei:

Foreign funds have been among the major sellers of these stocks since last September.

“The more the shares were owned by foreigners, the steeper their falls were,” says an official at Daiwa Securities Co.

Firms that benefit from emerging-nation demand, such as trading houses, were also among the market cap losers.

“Until early last year, there was a view that the economies of advance nations and those of emerging countries do not move in tandem,” says chief economist Yoshikiyo Shimamine of the Dai-ichi Life Research Institute, explaining that such a view did not hold and only amplified the repercussions.

This quote got me confused: “Until early last year, there was a view that the economies of advance nations and those of emerging countries do not move in tandem (sic).”

Amongst whom? Salespeople? Where do exports go?

BOJ looking at pumping another trillion yen in loans into banks

Just a year ago we were hearing reports on the supposed health of Japan’s banking system. There were even members of Japan’s parliament suggesting that Japanese banks could be in position to take over US and European banks in an effort to put Japan on top (oops). While that view was mocked in some small circles, it seems to have come round to expose the Japanese banking industry as still not being on proper footing.

On Tuesday, Bank of Japan governor Masaaki Shirakawa told reporters that “coupled with the downturn in the domestic economy, a decline in the health of financial institutions could have a negative impact on financial system stability.”

No shit, Sherlock. In other words, Japanese banks have continued their record of failure in overseas markets. That’s been discussed out in the open for at least a decade.

The Bank of Japan is now looking at pumping about 1 trillion yen into the banking system as the continued decline in share values means that BOJ purchases of shares held by banks isn’t going to have much effect. Japanese banks are seeing their capital bases further erode, and this will have an effect on their ability to lend. Should the state step in to help the banks? The answer to that question depends on whether you believe in socialism or capitalism.

But what you believe in barely matters; the Bank of Japan is free to act on its own whims, even if they will have the result of doing no good for the average taxpayer.

McDonald’s secures 40 billion yen loan from Japanese banks; to be put towards expansion in China?

Friday morning’s edition of the Nikkei is reporting that McDonald’s has secured a 40 billion yen syndicated loan from Mizuho Corporate Bank, Mitsui Sumitomo, and Bank of Tokyo-Mitsubishi UFJ. Nine other regional banks are also contributing to the 62 month loan, which will be denominated in yen.

Although the Nikkei says the loan is to be used for “business operations,” no specific information as to what those operations might be is available at this time. Despite the global economic and financial crisis, McDonald’s has been performing well as consumers seek cheaper purchasing solutions, and reported a 7.1% increase in sales in January. In 2008, McDonald’s posted record high sales in Japan.

Although the story has been picked up some some English language media sources, none seem to be making the connection to recent speculation that McDonald’s is seeking to expand in the Chinese market. On Wednesday, Brian Durkin, the vice president of development for McDonald’s in China, told reporters that the firm’s China operations had not been impacted by the economic downturn. ABC News provides a very interesting quote from Mr Durkin: “McDonald’s customers, when they go out shopping, they may not buy furniture or clothes, but they get hungry in the process.”

This sounds like a “be everywhere” strategy, which has certainly worked for McDonald’s in many places. The article goes on to tell us that McDonald’s intends to open 500 new shops in China over the next three years. Although this does not seem like a huge number of new shops, it seems clear from Mr Durkin’s comments that McDonald’s is looking at opening more restaurants in strategically important locations.

So, here are the questions: How much will it cost McDonald’s to open 500 new shops in China? At what interest rate did McDonald’s secure this syndicate loan? Why couldn’t Chinese banks (assuming the “business operations” in question are to be conducted in China) have raised their profile by securing the funds? Are Japanese banks using this loan to grab headlines?

Cross-shareholdings biting further into corporate profits

Back in June 2007, we reported that cross-shareholdings had increased in fiscal 2006 for the first time since FY1990. Although the 2006 figure (11.2% of shares) was still much lower than the 1990 figure (32.9%), the increase in cross-shareholdings was newsworthy, as the trend toward unwinding cross-shareholdings seemed to be motivated in part by fears of hostile takeovers.

At the time, the Nikkei reported that the new breed of cross-shareholding was different than what had been seen in the past, by stressing that “unlike in the past, when cross-shareholdings were often aimless arrangements, they are now being used to highlight business partnerships.” As a result, much of the growth in cross-shareholdings was seen amongst manufacturing firms rather than financial institutions.

Now, that increase in cross-shareholdings is having an effect on balance sheets. Not only are products not moving in domestic or export markets, but the strong yen and lowered stock prices have have combined to further batter profits. According to the Nikkei, Japan’s electronics manufacturers are looking at losses somewhere in the range of 1.95 trillion yen for FY2008, while automakers stand to lose about 415 billion yen.

Losses exacerbated by low stock prices is hardly limited to manufacturing firms, however. Consider this excerpt from an article from today’s Nikkei entitled Stock Losses Blotting Out Japanese Banks’ Moment In Sun:

The six major banking groups posted a 89% drop in combined net profit for the April-December period, according to results released through Friday. The stock market downswing since last fall is the biggest contributing factor, with the six groups writing down the value of shareholdings by more than 1 trillion yen combined.

How did the banks get in this position? The Nikkei offers this:

Based on the lessons learned at that time, the banks cut their shareholdings from roughly 27 trillion yen in fiscal 2001 to about half that figure in fiscal 2006. But the rate of decline has slowed since then because, according to Nikko Citigroup Ltd. analyst Hironari Nozaki, “bank executives lost their sense of urgency when stock prices recovered.”

In other words, risk management dozed off, if not went out the window. As a result, banks are finding it increasingly difficult to keep up with the demand for credit. Although lending grew by about 9 trillion yen in the last quarter of 2008, there remains the risk that further growth cannot happen unless banks are able to find some way to cut costs or increase their capital bases.

Development Bank of Japan to invest directly in firms?

Earlier today, Bloomberg reported that the Japanese government is considering a plan that would allow the Development Bank of Japan to buy preferred and common shares in Japanese firms. According to the report, “The government will guarantee a portion of the investments should the companies go bankrupt.”

What portion would that be? The Nikkei reported the same day that public funds would be used to cover up to 80% of the investments. In case you’re worried that foreign firms might be the recipients of public funds, the Nikkei tells us that an unnamed METI official described the bailout like this:

Only companies that have deep connections to regional economies and growth potential would be eligible to receive the capital infusions from the Development Bank of Japan or other authorized banks.

METI minister Toshihiro Nikai stressed that the program is meant to ensure that private financial institutions are able to lend, rather than setting up a mechanism by which the government injects public funds.

Bloomberg tells us that the Development Bank of Japan will raise funds by selling bonds and tapping existing reserves of cash, rather than employing public funds directly to make investments in firms.

Financial Services Agency going after BNP Paribas

From Thursday’s Nikkei:

Some stock market participants are still incensed by what they see as an act of betrayal by BNP Paribas Securities (Japan) Ltd., which negotiated a secret deal with Urban Corp. as part of the real estate developer’s fundraising activity.

On Wednesday, the brokerage submitted to the Financial Services Agency a business improvement plan outlining how it intends to revamp its internal controls and risk-management mechanisms. But to many domestic observers, BNP Paribas’ actions underscore the profit-driven business philosophy of foreign brokerages.

“What they did goes beyond what can be rectified with a business improvement order,” one market participant says — a view echoed by many others in the stock market.

After all we’ve seen over the past year, it’s almost surprising that BNP Paribas is still allowed to operate in Japan at all; after all, very little of the full story hits the media (then again, the full extent of FSA actions taken against more than one mega-bank three years ago were never even reported by the media)

Still, it seems all too convenient for the Japanese regulators and press club members to attribute a lack of trust in the markets to a single foreign bank.

Nomura to cut up to 1,000 jobs in Europe, after saying no job cuts planned less than three weeks ago

On November 19, Nomura CEO Kenichi Watanabe told reporters at the Foreign Correspondents’ Club of Japan, “There are no specific job cuts planned at this point.”

Yesterday, Nomura announced that about 1,000 jobs would be shed in Europe, in order to reduce payroll costs by as much as 20%. The Nikkei reports that Nomura has incurred about 2 billion yen in losses as a direct result of acquiring the remnants of Lehman Brothers. The current round of job cuts is expected to take place at Nomura’s London offices.

The Nikkei article concludes with this vague statement:

Nomura also inherited a total of roughly 8,150 employees through its buyout of Lehman Brothers’ Asia-Pacific division and Indian information technology operations. Some of these workers could face layoffs eventually…Other Japanese financial firms are also expected to cut jobs at their foreign branches.

Eventually? Other firms? Someone clearly knows more than they can write at the moment. Nomura is also looking to raise about 410 billion yen through a new bond issuance.

This article also provides a vague statement about Nomura’s future plans: “Asked whether Nomura is planning on layoffs at its Asian operations, the spokesman declined to comment.”

What we see in the media thus far leads us to believe that Nomura is far from finished in terms of slashing jobs.

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