Total Debt ¥ 3 Trillion – Caused by “Skip” and “Off-Book Debt”
November 24, 1997, “Yamaichi SecuritiesHas decided to voluntarily close the business. The bankruptcy of a major securities company that once drove the bubble economy became a symbolic event that showed that the deterioration of the Japanese economy after the burst of the bubble had “come to the point”. The Japanese economy went beyond the recession and entered the financial crisis, saying, “Bottom crackIt became the situation.
The profits of securities companies were deteriorating due to the slump in stock prices after the burst of the bubble, but in addition to that, in the case of Yamaichi Securities, “SkipIt was revealed that despite the huge loss caused by the fraudulent transaction called “, it was not recorded in the settlement of accounts and the loss was hidden for more than several years. Such “Off-balance sheet debtWas over 300 billion yen in Japan and overseas. A series of frauds were committed by the chairman and president at the time, and in connection with this, in July of this year, he was forcibly investigated by the Tokyo District Public Prosecutors Office and others on suspicion of providing profits to the general assembly shop, and in August of the following year. The chairman and president took responsibility for resigning (they were later arrested and charged with providing profits to the general assembly shop and accounting for window dressing, and were convicted).
As a result, Yamaichi’s credit instability spread, resulting in a stalemate in financing and the voluntary closure of business. The total debt is 3 trillion yen. It was the biggest bankruptcy after the war at that time.About 7,500 peopleEmployees got lost on the road, and the news had a great impact on society.
At a press conference on November 24, when the company announced its voluntary closure, President Nozawa cried, “We are bad, and our employees are not bad.” However, that word was exactly what was said above. President Nozawa was hurriedly appointed as president after the chairman and president resigned in the Sokaiya case, but until then he was at the forefront of sales, so fraud such as the Sokaiya case and “skipping” He was selected as the successor president because he was not involved in the act at all. Therefore, it is said that he learned about the serious condition of the company only after he became president.
A series of financial failures since November 1997
In fact, in November of this year, two financial institutions went bankrupt one after another before the bankruptcy of Yamaichi. First, on the 3rd, Sanyo Securities Co., Ltd., a second-tier securities company, applied for the application of the Corporate Rehabilitation Law with a debt of 373.6 billion yen. Announced that it will transfer its business to the North Pacific Bank, which is the second regional bank in Hokkaido. After the burst of the bubble, there were some bankruptcies of small and medium-sized financial institutions, but it was the first time for a major one. It can be said that November was the very beginning of the financial crisis.
Then, in 1998, the following year, the Long-Term Credit Bank of Japan and the Nippon Credit Bank, which were one of the major banks, went bankrupt one after another. It was no exaggeration to say that Japan’s financial system itself faced a crisis of collapse because no one had expected that the management of a major bank would go bankrupt in Japan until then.
Behind this was the problem of an increase in non-performing loans due to the bursting of the bubble economy. During the bubble era, many banks provided large amounts of real estate loans with land as collateral in anticipation of rising land prices, but the bursting of the bubble has increased the number of lenders who are unable to repay their debts or are overdue. .. Some of the lenders will go bankrupt and cannot be collected. These non-performing loans were increasing year by year.
According to media reports at that time, the amount of non-performing loans as of the end of March of the year when Hokkaido Takushoku Bank went bankrupt was 934.9 billion yen, accounting for 13.4% of loans. As much as 13.4% of the loaned money was burnt and did not come back, so I had to say that it was natural in a sense that bank management would get stuck.
According to data from the Financial Services Agency, the amount of non-performing loans of national banks reached 28.5 trillion yen in 1996, the year before the financial crisis began. However, at that time, there was a view that there were actually more because the clear definition of non-performing loans was still ambiguous and the banks themselves were reluctant to disclose the actual situation of non-performing loans. A little later, some US securities companies released a report that “Japan’s non-performing loans amounted to 230 trillion yen, accounting for 37% of total loans.”
However, even the published data has reached a huge amount, and the amount of non-performing loans in 2002 increased to 43 trillion yen, and the ratio of non-performing loans to the total loan amount has risen to 8.7%. This is enough to shake bank management.
Why has the number of non-performing loans increased so much? This means that the number of companies that cannot repay their debts properly has increased, and from the bank’s point of view, the amount of non-performing loans has swelled while the treatment of non-performing loans as a loss has been postponed. It was the actual situation. The bursting of the bubble created bad debts, which put pressure on bank management. It can be said that the luck of banks running for real estate lending on the bubble has come around. Seven years after the burst of the bubble economy, it finally developed into the bankruptcy of a major bank.
Public funds invested in major banks, mergers and integrations one after another
The financial crisis has also caused serious incidents. The aforementioned Yamaichi Securities Sokaiya case was actually a case that spread throughout the securities and financial industry from 1997 to 1998. Nomura Securities and Dai-Ichi Kangyo Bank were also subject to forced investigations, and during that time, the president of Dai-Ichi Kangyo Bank committed suicide.
In the process of the investigation, a corruption case in which a person in charge of the Ministry of Finance of each major bank was entertaining an executive of the Ministry of Finance came to light, and the entertainment place was a “no-pan shabu-shabu shop”, which attracted a lot of attention. This incident also triggered the establishment of the Financial Supervisory Agency (later the current Financial Services Agency) in 1998 by separating the financial administration that the Ministry of Finance had held in its hands.
In addition, the leaders of the bankrupt Hokkaido Takushoku Bank, Long-Term Credit Bank of Japan, and Nippon Credit Bank were arrested and prosecuted on charges of window dressing and back office, and criminal liability for bankruptcy was pursued.
In response to such a financial crisis, there are finally moves to survive the crisis. In October 1998, at the Diet, “Financial Stabilization ActWas established, paving the way for public funding to financial institutions. To prevent the collapse of the financial system, public funds, that is, the state had to spend money to fill the capital shortages of financial institutions. There was an objection that national money is a national tax, so it is not good to spend national tax on banks that made money from the bubble, but the purpose is not to rescue individual banks but to protect Japan’s financial system. And that was an unavoidable measure.
As a result, all major banks have been invested in public funds and have begun to improve their management. The disposal of non-performing loans did not proceed easily, but under the Koizumi Cabinet later, it will be meditation around 2003.
In parallel with this, a series of major banks occurred in the years following the financial crisis.“Merger / Integration”was. It was difficult for any major bank to survive this crisis on its own, so a merger that transcended the boundaries of the former conglomerate, such as Sumitomo Mitsui Banking Corporation, and the integration of the Dai-Ichi Kangyo Bank, Fuji Bank, and Industrial Bank of Japan. It became a reorganization drama that went beyond the conventional wisdom. Now, no major bank has experienced a merger or consolidation. This also shows how serious the financial crisis was.
Japan’s economy slumps further as it plunges into deflation
In this way, the financial crisis of 1997-1998 marked a major milestone for the Japanese economy. Finance is like the blood of economic activity. The financial crisis has also worsened the real economy, just as blood is dry and does not flow cleanly, causing problems with overall health. In response to the financial crisis, many banks will refrain from lending that may be at risk. this is”Credit crunchWas called. As a result, the cash flow of companies became tight, business performance deteriorated, and more companies went bankrupt.
Moreover, unfortunately, the consumption tax was raised from 3% to 5% from April 1997, when the financial crisis broke out, and consumption was chilling. This was combined with the financial crisis, and the economy, which had deteriorated after the burst of the bubble economy, sank further. The straps on consumer wallets have become stiffer, and price cuts have spread at supermarkets and convenience stores.
From here, the Japanese economy will enter into deflation. The consumer price index turned negative year-on-year from the latter half of 1998, and has been on a downward trend for many years since then. There was a time when it was temporarily positive due to the impact of the rise in crude oil prices (2008: 2008), but basically it continued to decline until around 2013, when Abenomics began.
At first glance, falling prices seem to be a pleasure for consumers. However, falling prices mean lower sales for the companies that produce and sell their products. If sales decrease, profits also decrease, so each company will reduce expenses, capital investment, labor costs, etc. to cover it. This will reduce demand and put more downward pressure on prices. Reducing labor costs will lead to a decline in household income and employment insecurity, which will cool consumption, which in turn will lead to price declines.
Thus deflation will shrink the entire economy. Once in deflation, people’s minds become less positive and economic activity tends to be less aggressive. This situation is exactly the biggest cause of the prolonged stagnation of the Japanese economy.
The escape from this deflation was launched in 2012.Abe Cabinet Economic Policy = AbenomicsIs the biggest goal of. Recently, consumer prices have continued to rise, and the situation of deflation has disappeared, but the reality is that we have not yet reached a “complete escape from deflation”. In that sense, when it will be possible to declare a complete break from deflation, it will be time to break away from the long-standing economic downturn of the bursting of the bubble.
Author Profile: Akira Okada
Graduated from Keio University Faculty of Economics in 1971 and joined Nihon Keizai Shimbun. After working as a reporter and editorial board member, moved to TV TOKYO in 1991. He has served as the director of the economic department, the president of TV TOKYO America, and the director / commentary chairman. He has been a commentator and producer of numerous economic programs such as “World Business Satellite (WBS)”. In 2006, he retired from TV TOKYO and became a visiting professor at Osaka University of Economics. Currently working as an economic commentator while teaching at the university. Appeared on MX TV “Tokyo Market Wide”.