JIN-254 -- Seizing Shares -- the ominous Ashikaga collapse

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J@pan Inc Magazine Presents:

T H E J @ P A N I N C N E W S L E T T E R

Commentary on the Week's Business, Technology and Cultural News
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Issue No. 254
Wednesday, December 3, 2003
TOKYO

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CONTENTS

@@ VIEWPOINT: Seizing Shares -- the ominous Ashikaga collapse

++ READERS RESPOND: The Nick Baker Letters (Part 2)
>> "Never underestimate the power of an angry mother ..."

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@@ VIEWPOINT: Seized Shares -- The ominous Ashikaga collapse

Even the biggest optimist had to admit that it was all going a little
too well to be credible. The Japanese banking system, though
allegedly on the mend, is still the kind of patient that can suffer
a sudden relapse and put the entire industry back on the critical
list.

Sure enough, with the end of the year in sight, Ashikaga brought Japan's
banking collapse total to two. There were plenty of similarities between
the nationalization of Ashikaga and the partial state seizure of Resona
Bank back in May. But it's the few critical differences that worry us.

First of all, there is the apparent deceit -- all the more disturbing
because it was carried out by at least three central government
institutions: the Prime Minister's Office, the Financial Services Agency
(FSA) and the Cabinet Office.

When the possibility of an Ashikaga bailout first broke, all three of
those institutions brazenly denied that a bailout was even under
consideration.

That cannot possibly have been true. The bailout of a bank is not an
overnight decision, even in Japan. The denials continued until just
a few days before the 1 trillion yen bailout -- and they
look all the worse for the timing.

It should now be perfectly clear to investors that they cannot always
trust the official line, even from a government that was elected to reform
precisely this sort of opaqueness.

Then there are the circumstances of the announcement itself: at 10 pm
on a Saturday night in the middle of a weekend that just happened to be
a major public holiday in the US. Remember that the Resona announcement
was also made during a Japanese national holiday weekend. Sunday
newspapers were able to get the story into their last editions, and
market players sitting at home over the weekend had a chance to let the
news settle in.

In fact, the strategy worked -- but for all the worst and most dishonest
reasons. On the Monday of the Ashikaga nationalization itself, the Nikkei
Average soared by more than 400 points.

As with the Resona bailout, the FSA and the Bank of Japan (BOJ) were at
pains to limit the fallout of the collapse. Deposits are all guaranteed,
the incompetent board of Ashikaga has been sacked and replaced
with an FSA team, the BOJ made sure there was enough cash liquidity to
withstand a bit of panic and local companies in Tochigi (where Ashikaga
is the dominant financial institution) were treated to some sage advice
on how to get their businesses through all this.

As with Resona, the Ashikaga measures are very likely to provide the
sort of makeshift bandages that the overall banking system needs to
continue limping on. But serious questions remain over what happens
next.

The smart money is now on a long series of regional banking failures.
The Ashikaga mess has revealed considerable discrepancies between what
management was saying about the state of its bad loan problems and
the reality of the bank's predicament. (It had also apparently tumbled
into negative net worth far sooner than it admitted.) Other banks may
not be in quite such dire straits as Ashikaga -- the Bank of Japan had
long warned that there were problems lurking there -- but many of them
cannot be far behind.

The next major concern is therefore how the government is going to
treat each case, and it is here that the Ashikaga experience sends the
most worrying message. The nationalization of Ashikaga, unlike that
of Resona, left shareholders in the bank with absolutely nothing.

The shares were seized, not bought.

If Koizumi's and Takenaka's message in the Ashikaga bailout is
discernible, it runs as follows: We think the big city banks are in
acceptable shape, but the 120 regional banks have clearly got some
pockets of rot. We are now going to turn our guns on them and will be
taking no prisoners.

From a more honest administration, it would be an impressive rallying
call.

-- The Editors

**FOR MORE:
"Will Resona spark a buyout spree?" from J@pan Inc magazine,
May 2003:
http://www.japaninc.com/article.php?articleID=1127&page=3

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@@ READERS RESPOND: The Nick Baker Letters (continued: Part 2 of 2)
>> "Never underestimate the power of an angry mother ..."

To The Editors:

Regarding your feature story on the imprisonment of Nick Baker (J@pan
Inc, November 2003):

Obviously Mr. Baker is suffering, and relief from that ought to be sought
with full vigor. By UK standards, his trial was at least suspect. But here
in Japan it was routine, and expecting the authorities to be anything more
than annoyed or mildly embarrassed at the outpouring of support for Mr.
Baker is naive. Barring an agreement between Japan and the UK that allows
citizens of each country to serve out their sentences in their home country,
Mr. Baker is unlikely to go anywhere, whatever his mental or physical state.

I remind you of the noisy buildup to the World Cup and the public discussions
of British hooligans and their potential for wreaking havoc at venues in
Japan and Korea. Mr. Baker is an unwitting victim of all that attention
to the behavior of his countrymen. Victim, yes, but he admits to carrying
the bag, and it contained something illegal and banned. Guilt is established.

What about the "other man?" Well, Japanese authorities would have only the
word of Mr. Baker that he was "duped," and for Japanese authorities a
confessed miscreant is not a reliable witness. But the accomplice, or
perpetrator is in jail for pulling the same thing in Europe? So what?
That is there; Mr. Baker was here.

I have spent several decades observing Japanese police procedure and court
behavior, even teaching comparative criminal Law at a Japanese university,
and I find virtually no difference between what has happened to Mr. Baker and
what has happened to countless Japanese and other foreigners.

Would it have happened the same way elsewhere? In some places, certainly.
Mr. Baker is pretty lucky that he didn't behave foolishly in a country that
has the death penalty for his violation.

What is Mr. Baker guilty of? Stupidity at the very least, being oblivious to
reality most certainly, and probably more in the same vein. Should he spend 14
years in jail for it? If he were in Texas, Alabama, Florida and a number of
other US States -- the answer would be yes.

Is the Japanese legal system at fault? Of course. Ought it be reformed? Yes.
Will this case help that process? It remains to be seen. Those who would seek
his release, a mitigation of sentence, a review of practices and procedures,
and all the other things being demanded need to know, though, that Nick Baker
is not the only one to have been in this situation in the past, nor will he
be the last.

Will the protestors be successful? I would never underestimate the power of
an angry mother, but I am not optimistic that they will get their way anytime
soon. With all the political rhetoric about the "criminality" of foreign residents
in Japan, innaccurate though it obviously is, I don't think that Japan is yet
ready to consider Mr. Baker as a test case for leniency.

-- Thomas T. Winant

**For More:

On foreigner workers in Japan:
"Future Imperfect" from J@pan Inc magazine,
October 2003:
http://www.japaninc.com/article.php?articleID=1205

The Nick Baker story:
"And Justice For All ..." from J@pan Inc magazine,
November 2003:
http://www.japaninc.com/article.php?articleID=1227

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STAFF
Written and edited by Roland Kelts and
Leo Lewis (editors@japaninc.com)

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