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Yamaichi faces deadline
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November 21, 1997: 9:09 p.m. ET
Struggling securities firm ordered to produce business plan by Monday
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NEW YORK (CNNfn) - Japan's Finance Ministry Saturday ordered the country's fourth-largest brokerage, Yamaichi Securities Co. to come up with a plan to deal with its financial troubles by Monday.
The move comes amid growing speculation the brokerage firm may need to liquidate.
At a news conference in Tokyo, Ministry officials said they did not believe Yamaichi's liabilities exceeded its assets, but suspicions were growing that the broker had massive off-balance sheet liabilities exceeding 200 billion yen ($1.58 billion).
According to Japanese news reports the struggling investment firm submitted a request to Japan's Ministry of Finance to cease operations and liquidate.
However, Ministry of Finance securities bureau director general Atsushi Nagano declined to comment on whether a voluntary shutdown of operations is a possible option for Yamaichi.
The liquidation of Yamaichi, with liabilities exceeding three trillion yen, or $24 billion, would be Japan's largest postwar corporate failure.
Nagano said the ministry will take appropriate measures on 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.
Nagano said the ministry could not rule out the possibility that Yamaichi violated Japanese law, given its suspected off-balance sheet liabilities that are thought to have been generated years ago.
Yamaichi, the smallest of Japan's Big Four brokerage firms, has been hurt by the sharp decline in the Tokyo stock market, increased competition and an investigation into a corporate payoff scandal in Japan.
On Friday, Yamaichi's future became even more clouded when Moody's Investors Service downgraded the firm's debt to junk bond status.
The move made it nearly impossible for Yamaichi to attract capital, undermining the possibility of survival. The brokerage had reportedly been talking to a number of foreign financial institutions in recent days about a possible alliance and infusion of capital.
A Yamaichi closure would be a new body blow to Japan's battered economy following on the collapse of Sanyo Securities Co., a second-tier brokerage house, and Hokkaido Takushoku Bank, one of Japan's top 10 major commercial banks.
Last July, Yamaichi grabbed headlines when it became Japan's second top brokerage to become embroiled in a high profile scandal over illegal payoffs to "sokaiya" corporate racketeers.
In August, Yamaichi went through a corporate bloodletting and sacked 11 top executives to try to shake off the scandal.
Coming only five days Hokkaido Takushoku Bank Ltd. closed its operations, news of Yamaichi's troubles spread like wildfire in markets around the world and presented new evidence that Japan may be nearing a banking crisis.
In late Friday trading, Nikkei futures were pummeled, falling 285 points to 16,315.0, foreshadowing an expected sharp drop on the Nikkei when dealings resume on Tuesday.
"There are several banks and smaller securities companies that are bad," said Arthur Alexander, president of the Washington-based Japan Economic Institute of America.
Analysts also said problems could spread to Fuji Bank Ltd., Yamaichi's biggest creditor, but Morton Swinsky, president and chief executive officer at Fuji's U.S. unit, said he could not say whether his group might be affected.
Other brokerages insisted that Yamaichi's troubles would not trigger mass failings and could even hold a silver lining by possibly eliminating a competitor.
"Yamaichi had problems that were specific to them," said Terrence Pigott, executive vice president at Daiwa Securities America Inc., a subsidiary of Daiwa Securities Co.
"Daiwa has a lot more capital and is sound, we are in a totally different situation. And, I would say the same thing for the other Japanese firms," Pigott added.
The development comes a day after Yamaichi approached Fuji Bank Ltd., its primary creditor, for assistance in boosting liquidity and capital.
Yamaichi is the fourth-largest investment house of Japan's so-called "Big Four" following Nomura Securities, Daiwa Securities and Nikko Securities. The firm, which employs about 8,000 people, has 126 offices in Japan and 29 overseas.
Experts said the magnitude of a Yamaichi collapse could create ramifications for years to come.
"My own feeling is this is going to be very positive for Japan in the longer term but it doesn't mean there's not going to be paid in the meantime," said Edward Collins, head of trading at Daiwa Securities.
"It will make the public more aware of the problems and make the politicians more responsive," Collins said.
-- from staff and wire reports
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