Slices of Japanese business, politics and life
Pub wisdom about Japanese bank shareholdings
Shares of Japanese banks have taken such a kicking lately that one wonders if they’ll ever be able to walk straight again. Tokyo’s index of bank stocks has dropped 18 percent so far this year, on top of a 43 percent drubbing in 2008.
While not the spectacular decline and fall of a Bear Stearns or a Lehman Brothers, the stock slide is significant because Japan’s banks have little subprime exposure, relatively healthy balance sheets and fairly bouyant core profits.
The problem is their cross-shareholdings. Unlike Western rivals, Japanese banks take stakes in corporate clients to cement business ties, making them sensitive to swings in equity prices.
Tokyo’s top three banks have already raised nearly $21 billion in new capital to offset their stock losses, and may need more if the Nikkei’s slide continues.
It’s a woeful position for both banks and shareholders, but the truth is that Japanese banks are unable to escape a trap of their own making.
I was reminded of this the other night as my drinking companion, a Japanese banker, became increasingly doleful as the beer went down in Ginza.
“What you don’t understand is we have little choice in the matter,” he said, deep in his cups.
“Unlike the West, there is no law to prevent us from holding shares. If we cut our stake in a company, they’ll turn around and significantly reduce business with us.”
It’s no wonder cross-shareholding has frustrated activist investors for decades. But it’s also no mystery why Japanese banks won’t dump their stakes. It may be craven and ham-fisted, but for them it’s one cost of doing business.
And until there’s a regulatory change to limit Japanese banks’ stockholdings, it will continue to be a cost — especially to shareholders.
Photo credit: REUTERS/Yuriko Nakao