Bankruptcies in Japan Fueled by Speculation

Japanese bankruptcies are rising at an alarming rate as a growing number corporations and individuals sink under losses from speculative investments in the stock and property markets.

Analysts say the rise in bankruptcies--which are expected to reach record levels this year--could weaken Japan’s banking system and result in higher interest rates on loans to companies and consumers.

In the latest example, a credit research firm said Thursday that Nui Onoue, a 61-year-old restaurateur and stock speculator arrested last week on charges of using $2.5 billion in bogus certificates of deposits as collateral for loans to buy stock, is bankrupt.

The $3 billion in debts accumulated by Onoue, who said she got stock tips from God, would make hers the largest bankruptcy since the $3.8-billion failure of Sanko Steamship in 1985, a postwar record, Teikoku Data Bank said.

Although Onoue has not formally filed for bankruptcy, she was declared insolvent by her creditors after she failed to pay interest on her debt and a branch of Dai-Ichi Kangyo Bank in western Japan refused to honor her credit, Teikoku said.

As a result of Onoue’s troubles and several large failures by real estate firms, bad debts related to bankruptcies probably will climb to more than $50 billion this year, according to Akio Mikuni, president of his own credit-rating agency.

That would be more than triple last year’s bankruptcy-related debts and substantially surpass the $31-billion postwar peak in 1985.

Individuals and corporations have run into financial difficulty because of five years of speculative investments, analysts said, resulting in bankruptcies that probably will continue to grow.

Teikoku says bankruptcies related to zaitech --financial speculation--this year have resulted in debts totaling $4 billion, more than 10 times the level of last year.

Mikuni predicts that bad debt tied to bankruptcies will climb to $74 billion next year and remain at that level three more years.

“Up to now, there were few bank writeoffs, so banks could maintain low margins,” Mikuni said. “Now, they will have to raise their margins.”

In the past, banks have tended to provide substantial assistance to companies with troubled loans, avoiding writeoffs.

Banks have already been weakened because most of Japan’s strongest companies have turned to equity markets--issuing stocks and bonds--to raise capital.

As a result, said Makoto Sakurai, chief economist at Taisho Research Institute, a think tank, banks have been forced to find new business by lending to riskier borrowers on such projects as golf course developments.

Since banks are expected to bail out companies whose management goes awry, they often carry large portfolios of loans on their books whose troubled natures are not immediately apparent.

Their practice of hiding these debts will become increasingly difficult as the amounts increase, Sakurai said.

“The Industrial Bank of Japan was the best of the best, and even they got hooked,” he said. The largest lender to Onoue, the bank is believed to be one of the chief victims of her alleged fraud.

Onoue was manager of two high-class restaurants and a string of mah-jongg parlors. She initially borrowed money against the value of her land to invest in the stock market.

The volume of her trades became so high that she was regarded as the largest individual investor in Japan.

According to police sources cited in press reports, Onoue suffered $1 billion to $2 billion in stock market losses.