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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Japan Rocked By Collapse Of Brokerage Company Yamichi Securities Shuts Down In Face Of $26 Billion Debt

Kozo Mizoguchi Associated Press

Yamaichi Securities, one of Japan’s largest brokerages, closed down today because of financial woes from a payoff scandal and a slump in Tokyo stock prices. It is the largest company to collapse in Japan since the end of World War II.

Japan’s Finance Ministry said they received word of the decision by Yamaichi’s board of directors early today. The notification means the 100-year-old brokerage firm will return its operating license to the ministry.

“It breaks my heart that the situation has turned out like this,” Yamaichi President Shohei Nozawa said at a news conference announcing the closing. He apologized to customers and investors.

Government officials sought to calm the markets.

“I strongly hope investors as well as customers will act calmly,” Finance Minister Hiroshi Mitsuzuka told reporters. “We will take all available steps to maintain the stability of the financial system.”

The fall of Yamaichi shocked the Japanese financial world. The company leaves behind debts totaling about $24 billion.

In addition, Finance Ministry officials discovered over the weekend that Yamaichi had off-the-book debts totaling $2.06 billion. Mitsuzuka said those debts would be investigated.

Repayment of Yamaichi stockholders and other payments on bonds purchased through Yamaichi will be allowed starting Tuesday, the ministry said. As of March, the company had more than 82,000 shareholders.

The failure will result in the loss of about 7,500 jobs, Kyodo Mews agency said.

Japanese financial officials had softened reports late last week that the brokerage firm would shut down, saying that a final decision had not yet been made. That decision came at a 30-minute meeting early this morning.

The Bank of Japan also had an emergency meeting Monday morning to decide on extending special, interest-free loans to Yamaichi to protect assets of its customers, Mitsuzuka said.

The move is also designed to ensure the market’s stability. Today is a national holiday in Japan and the Tokyo Stock Exchange was scheduled to reopen Tuesday.

Japan’s Finance Ministry and the Bank of Japan both will ask three major banks, including Fuji Bank Ltd. of Japan, to provide funds to help with the closure, while notifying financial authorities in the United States and other key economies about details of the closure and measures to be taken.

Yasushi Matsushita, governor of the Bank of Japan, also told reporters today that customers and investors should not worry because the brokerage’s debts do not exceed its assets.

The failure of Yamaichi comes as part of the financial hangover from the burst of the 1980s “bubble economy” of real-estate speculation and excessive lending.

Earlier this month, Sanyo Securities Co., a medium-sized Japanese brokerage, went bankrupt after failing to repay mounting debts. The collapse of Hokkaido Takushoku Bank, one of Japan’s 10 commercial banks, followed on Nov. 17.

Yamaichi has seen its stock price severely battered in recent weeks amid concerns over its financial health. Last Thursday, it asked for financial help from Fuji Bank, one of Japan’s biggest banks.

Last week, its share price fell below 79 cents, a level believed by market participants to indicate near-collapse.

On Friday, Moody’s Investors Service downgraded Yamaichi’s debt to junk-bond status. Lower credit ratings make it more expensive for companies to borrow money. Standard and Poor’s also lowered its rating on Yamaichi to junk status, based on the reports of its decision to close.

Last month, Yamaichi reported a loss of $63 million, for the six-month period ending Sept. 30. The company cited poor results on sales of Japanese equities, especially in Europe, and continued weakness in Tokyo stock market.

The brokerage, which was saved from collapse in 1965 by government assistance, has suffered from a payoff scandal involving racketeers who routinely threaten to disrupt shareholders’ meetings.

The scandal has led to the arrests of its former president and five other executives, and had tainted the other three major Japanese brokerages.