Raw Japan

Day one speed bumps

Japanese Prime Minister Yukio Hatoyama‘s first official day on the job has come with lots of media attention, photo opportunities and the first couple of speed bumps for his administration.

The contrast with his predecessor was clear from the TV coverage. All but one of the major channels in Tokyo carried him live. Leading up to his election drubbing last month, former Prime Minister Taro Aso could not always get his pressers carried live even on national broadcaster NHK.

Yet amid the ritual and grand opening statements, one minister gave an already strengthening yen another kick up, while a second pushed down the shares in Japanese banks — both before they’d been officially announced and sworn into their new jobs.

Banking and financial services minister Shizuka Kamei was the first to move markets.

A former police official and anti-postal reform rebel, he was a surprise pick for that job with a lack of markets experience leaving analysts scratching their heads as to what he might do.

They did not have to wait long as Kamei said he would push for banks to freeze repayments of mortgages and small business loans.

from MacroScope:

Vision of the future? See Japan’s past

MacroScope is pleased to post the following from guest blogger Ian Bright. Bright is senior economist at ING and winner of the 2008 Rybczynski Prize from the UK Society of Business Economists. He says here that bank lending's future can be seen in Japan's past -- and it is not good for the would-be borrower. 

"There is anger in many countries that banks are not lending money. Or more correctly, they are lending less than people want.

There is nothing new in this. Even before the failure of Lehman Brothers and the collapse of the global financial system, banks were tightening lending criteria. We even saw people who paid off their credit cards each month have them withdrawn. Small companies found that the criteria used to value the assets backing loans were made more onerous.

When the financial system virtually collapsed, governments provided money and central banks lowered rates. Many thought that this would increase the ability to get loans from banks. Indeed some governments made efforts to link the provision of public money to increased loans to particular groups, such as small businesses and homeowners.

But that is not what is happening. Banks are still reluctant to lend. And, really, nobody should be surprised.

Two factors are at work.

First, the economic cycle is working against lending. Even if a V shaped recovery takes hold in many countries, the fall in activity that has occurred is large enough to ensure an increase in bad debts for banks over the next year or two. Banks are reluctant to lend under these conditions.

from Summit Notebook:

Nomura: Lehman taking shape

Nomura's takeover of Lehman Brothers' European and Asia businesses is yielding results, and concerns the Japanese bank will struggle to marry cultures is misplaced, according to the man who drove the deal.

"It's a very successful start and we've been happy with what we've got," Takumi Shibata, chief operating officer for Nomura, told the Reuters Japan Investment Summit in Tokyo.

"We are finding surprisingly little differences between Lehman in Asia and Europe and Nomura in Asia and Europe. It was a marriage of two multicultural organisations, and both Lehman Brothers and Nomura aspire to be houses with a collegiate culture."

Nomura had kept most of the Lehman staff it wanted to, has learnt from past international expansion mistakes, and was winning back business lost in the aftermath of the deal, he said.

It was number three in London equities trading in June, for example -- from "nowhere" in December and number 8 in May.  Lehman had been number one before its collapse, however. "There's no guarantee that we will go back to number one, but we want to be," he said.

Nomura is also hiring bankers to beef up its U.S. presence, and is applying for an equity license in Australia and looking for a partner in China.

from Summit Notebook:

Asia still a wealth of wealth players

A few years ago, domestic and international financial players were chomping at the bit to lure Mrs. Watanabe's millions of yen or fellow Asians' yuan, won or dollar holdings from their futons or equal-interest savings accounts.

The global financial crisis in the last year has sparked a rejigging of foreign institutions' expectations about Asian wealth and their own ability to attract it, with some opting out of the game altogether.

Barclays Asia-Pacific CEO Robert Morrice isn't letting his rivals' woes temper enthusiasm.

He says the No.2 British bank will boost staff and its private banking arm, Barclays Wealth, expects to manage $20 billion in Asia outside of Japan by 2012, compared with $10 billion at end of this year.

"We see some very interesting opportunities in that space. We believe we're still small and need to grow the business aggressively," he told the Reuters Japan Investment Summit. "We need to be patient and pick our spots."

India has been one of those, likely to hit $1 billion under management by the end of this year, while its overall staff there now number 7,000.

Asia banks eye gaps on the Western front

Mike Smith, the chief executive of Australia and New Zealand Banking Group Ltd, is looking to fill some gaps.

As global banks such as Royal Bank of Scotland Plc and Citigroup Inc reel from losses on toxic investments and take massive government bailouts, Smith reckons he may be able to steal some business in Asia.

“Citi is still there, but of course everyone is waiting to see what happens,” Smith told a news conference in Hong Kong recently.

“So, yes, there’s a gap in the market and I think we’re the obvious contender to fill it.”

Asian commercial banks such ANZ and Singapore’s DBS Group are angling for the big corporate loans that were once the territory of global, Western banks.

Standard Chartered Plc and HSBC Holdings Plc, London-based but Asia-focused, are among those expected to seize opportunities in corporate lending, trade finance and loan syndication.

from MacroScope:

Japanese lessons

Japan, slightly sidelined by the U.S.-UK "special" relationship and the Franco-German alliance at the G20 summit, is keen to stress the country can offer lessons to be learned from the country's banking crisis in the 1990s.

Here's a re-cap of what happened. In 1992, then-PM Miyazawa warned of a financial crisis unless banks were recapitalised using public funds now. Yet no action was taken. Between 1995 and 1997, staggering 5 financial institutions failed, forcing the government to inject public funds into 21 banks in 1998. Then two major banks were nationalised, then the government injected additional capital into 32 banks.

U.S. Treasury Secretary Timothy Geithner experienced the crisis himself as a financial attache at the U.S. embassy in Tokyo in the 1990s.

But how relevant are Japanese lessons to the global markets today?

"In some ways, Japan was lucky. Its lost decade was spent at a time when the global economy was recovering from recession. As a result, there was an opportunity for exports to grow," Ian Bright, ING economist, writes in a paper which won the Society of Business Economists' Rybczynski Prize.

"Today, the situation is different. The problems in financial markets are global rather than local. As a result, the chances of any one country finding solace in exports are slim."

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.