JIN-484 -- When the dust settles on Wall Street, can Japan step in?

J@pan Inc Newsletter
The 'JIN' J@pan Inc Newsletter
A weekly opinion piece on social, economic and political trends
in Japan.
Issue No. 484 Wednesday October 1, 2008, Tokyo
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Week 3 of the US economic meltdown and samurai bonds have joined the
list of casualties on the back of the Lehman bankruptcy. The
fastest-growing part of the global corporate debt market has now come
to a halt after Deutsche Bank, Societe Generale and National Grid Gas
cancelled sales following the bankruptcy. After subprime, the samurai
bond market was one of the only bonds market to expand but after the
Lehman's collapse, Japanese investors were left holding ¥195 billion
of debt.

The rejection of the $700-billion bailout plan by the American Lower
House lawmakers sent further shockwaves through Wall Street following
the fallout of the Lehman's collapse. The US government drew the line
in the sand but now some are questioning whether the move was wise.
Certainly, the events which followed were unprecedented.

Koyo Ozeki, who heads Asia Pacific credit research at the Tokyo unit
of Pacific Investment Management Co., told Bloomberg:

"The U.S. Treasury may regret the outcome of Lehman once the crisis is
concluded… history will prove it would have been cheaper to save
Lehman than deal with the cost of failure."

Before Lehmans, samurai sales stood at 2.6 trillion yen of samurai
sales, up from 2.2 trillion yen for all of 2007. Some predicted that
the bonds would top 3 trillion this year. But the Lehman's failure,
together with the US bailouts of Fannie Mae, Freddie Mac and insurer
AIG, have made investors, already wary of anything except government
bonds, stay away from even the samurai bonds.

Of course, the rise once again of the Japanese banks, will be
something that could usher in a new era for Japan. Names like
Mitsubishi UFJ, Sumitomo Mitsui and Nomura have once again been heard
on Wall Street. While Europe stood and watched, Japan moved in on some
of the biggest names in world finance. After a decade and a half of
pain, the Japanese institutions have been able to move at a time when
others couldn't.

How the traditionally top-down management will mesh banks such as
Goldman Sachs, Lehmans and Morgan Stanley remains to be seen. Have the
Japan banks changed enough over the past 15 years to be able to create
useful synergies with the fast-paced Western banks? Some analysts have
been skeptical. Mitsubishi UFJ experienced problems when it tried to
micro manage Bank of California and Union Bank in the late 1990s.

Again, if they can make the relationships work remains to be seen.
Right now those financial institutions need to raise capital.
Management battles are down the track. But in the future, the
performance of those Japanese banks will go a long way to prove
whether the big Japanese players can truly be considered global
players in the increasingly globalized finance industry.

In the meantime, Wall Street waits with baited breath for a savior in
its time of need. Will the US government be able to overcome partisan
politics in time to push through the massive bailout bill it had

Michael Condon

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