Japan Tells Yamaichi to Finalize Crisis Plan

Japan’s Finance Ministry said today that it ordered the country’s fourth-largest brokerage, Yamaichi Securities Co., to finalize a plan to deal with its financial troubles by Monday.

The ministry said it did not believe that Yamaichi’s liabilities exceeded its assets, but suspicions were growing that the “Big Four” broker had massive off-balance sheet liabilities exceeding $1.58 billion.

Speaking at a Tokyo news conference as reports swirled that the brokerage was on the brink of bankruptcy, Finance Ministry official Atsushi Nagano said that he could not comment on whether a voluntary shutdown of operations is a possible option for Yamaichi. Japanese media reported today that Yamaichi intended to shut down its operations.

The possible closure of the brokerage would be the biggest corporate failure in postwar Japan.

Nagano said the ministry will take appropriate measures regarding Yamaichi after receiving the company’s plan of action. He said it was too early to specify any measures, such as whether to extend special uncollateralized loans from the Bank of Japan, although he added that the ministry would place top priority on protecting Yamaichi’s depositors.

Worries that Yamaichi was on the verge of collapse had mounted in recent weeks, fueled by an announcement early this month that U.S. credit rating agency Moody’s Investors Service was considering downgrading the brokerage’s debt to non-investment grade. Yamaichi’s troubles were the latest to hit Japan’s battered financial sector, which in recent months has witnessed the collapse of major banks, brokerages and insurance firms.

The future of Yamaichi, a household name in Japan’s securities business, has been bleak for weeks.

A late night meeting of Yamaichi executives Friday about the company’s future was the catalyst for a spate of Japanese media reports forecasting that today would spell the firm’s end.

The Nihon Keizai Shimbun and Kyodo News Service reported that Yamaichi had asked the Ministry of Finance for permission to cease operations.

“Yamaichi Securities Co, one of Japan’s ‘Big Four’ brokerage houses, has abandoned its rehabilitation plan and will instead liquidate itself,” Kyodo quoted industry sources as saying.

Yamaichi, the smallest of the Big Four, has seen its shares spiral downward since Nov. 6, when Moody’s warned it might cut its credit rating. Its stock price has dropped 80% from its 1997 high at the start of this year.

The Japanese media sources said the bank last weekend was considering a restructuring plan that would split the firm into three entities and shut some of its overseas operations.

The move apparently stemmed from continuous withdrawals of Yamaichi’s client assets, which totaled $190 billion as of the end of September.

A Yamaichi closure would be a new body blow to Japan’s stalled economy, following on the heels of the collapse of Sanyo Securities Co., a second-tier brokerage house, and Hokkaido Takushoku Bank, one of Japan’s top 10 major commercial banks.