It's always taxpayers that foot the bill

Sunday, October 17 2004 @ 09:44 AM JST

Contributed by: Y.Yamamoto

Daiei apologizes (Left)/UFJ apologizes (Right)

Last year the Japan's fifth largest banking group Resona applied for a massive injection of the "public funds", i.e., taxpayers' money, when it became clear it wouldn't be able, on its own, to make its capital adequacy ratio meet the international norm of 4.0%. The Koizumi government matter-of-factly gave the green light for a JPY 1.96 trillion, or US$ 17-plus billion, bailout. In return 29 board members there stepped down with their retirement allowances totally returned to the company. Although a total waiver of retirement packages by executives in similar cases was a relatively new thing, it was nothing more than a bunch of thieves returning their loot when captured red-handed. And nothing more than that has happened ever since.

Only a little more than one year later, we are seeing yet another banking institution, UFJ Bank this time, caught in a serious trouble with ever-increasing nonperforming debts eating into its capital structure. When the megabank was born in 2002 as the result of the merger among Sanwa Bank, Tokai Bank and Toyo Trust & Banking Co., these merger partners, especially Sanwa, had already been scandal-tainted up to the neck. And absolutely nothing has changed since then.

If anything, what is different this time from the Resona bailout is that UFJ is not seeking a bailout directly financed with the public funds. The bank has decided to shift the blame onto one of its main debtors, Daiei, the ailing retail giant, as if it wasn't primarily the creditor's fault to have lent a huge amount of money to a bad risk such as Daiei. UFJ, along with other creditors, threatened the Fukuoka-based supermarket chain operator that owes them roughly JPY 1 trillion altogether, saying it wouldn't allow it to roll over the outstanding debts if it refused to turn to the Industrial Revitalization Corp. of Japan for refinancing.

The IRCJ, yet another quasi-governmental body operating under the supervision of the Financial Service Agency, is a brainchild of Koizumi. And Koizumi's trick this time is to channel the taxpayers' money to Daiei, and ultimately to UFJ, through the governmental body disguised as a private entity.

At first, this trick didn't look to work out very well when Daiei President Kunio Takagi, tacitly backed by Economy, Trade and Industry Minister Shoichi Nakagawa, refused, for an obscure and implausible reason, to let the IRCJ assess the asset values carried on the balance sheet of the debt-ridden retailer as a precondition for taking over the debts from UFJ and other financiers.

Needless to say, Takagi has a lot of things to hide, but on Friday he finally yielded to the demand by UFJ and the FSA. At the same time he announced that he would step down as president of the company.

Of course it's not only Daiei but also UFJ that has a lot of things to cover up, some of them having been inherited from former Sanwa Bank and possibly being passed on to the new bank to be created in 2005 in another merger between UFJ and the Mitsubishi-Tokyo Financial Group. It seems as though they think the only workable way of straightening out the mess is to water it down by one merger after another.

Earlier this month the FSA filed criminal complaints against UFJ and on October 8, investigators from the Tokyo District Public Prosecutors Office raided the bank's Tokyo Headquarters. The investigation squad found out, for one thing, that former Vice President of UFJ Kazumi Okazaki had ordered a falsification of the minutes of an internal meeting over the credit-worthiness of UFJ's major debtors including Daiei. According to a report, from among several scenarios of Daiei's future business perspective presented at the meeting, the worst case scenario had been removed from the minutes.

And even in the absence of evidence or media reports pointing to it, I, as a former financial manager, am reasonably sure that auditors and sokaiya (corporate racketeers), as well, have played an important role in covering up all these irregularities.

At the end of the day taxpayers and consumers are going to have to foot the bill for all this. I am afraid that we will end up becoming addicted to the fester we are forced to swallow every time a scandal of this kind surfaces.

The only good news is the fact that FSA had to file the criminal complaints against UFJ just because a whistle-blower inside UFJ was courageous enough to turn his or her employer in to the agency.

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