Hakuo Yanagisawa first learned how to pitch to foreigners in the 1970s when he was a New York-based finance ministry official pushing Japanese bonds.
Today, the minister for financial services heads abroad for the second time in two years to convince the world Japan is fixing its banks. Quite what he has to sell or what he can boast about is another matter.
Since his 1999 overseas tour, Japan's banks have dished out ?30 trillion (US$250 billion) writing off bad loans -- yet his agency still categorizes one fifth of borrowers as troubled. Only one nationwide bank has been sold to a foreign investor and analysts say the rest of the banks are no closer to profits.
"They promise much but haven't accomplished all they could have," said Roger Kubarych, a US economic advisor to Germany's HypoVereinsbank AG, who met Yanagisawa during his last New York visit. "It's like holes in the boat have been patched up but it could still sink." The regulator has picked an awkward time to jet off across the globe. Reports this week showed industrial production plunged for a fifth month in July and unemployment rose to a record 5 percent, driving the broad Topix stock index to a 30-month low.
That's putting pressure on Prime Minister Junichiro Koizumi to stem a rise in bankruptcies by relaxing his pledge to fix the bad loan problem within three years. The government this week said it may take until 2007 to fix the problem.
"It's still not clear how much priority will be put on dealing with bad loans," said Merit Janow, a Columbia University professor specializing in East Asian trade and economic issues.
Investors would like Yanagisawa to say he won't go soft on banks or bend accounting rules that now force shareholdings to be valued at market price, said Patricia Kuwayama, vice president of economic research at J.P. Morgan Chase & Co in New York. They'd also like to hear that he will shut banks found insolvent after results in November and sell stakes to foreign investors.
Beyond saying he wants to explain Japan's financial situation directly, Yanasigawa hasn't made it clear what he wants to achieve. He will visit the Bank of England and Britain's Financial Services Agency and then call on US Federal Reserve Chairman Alan Greenspan.
Yanasigawa says Japan's loosening regulations, which have allowed foreign firms take a larger slice of Japanese business, are on the agenda. There are no meetings with foreign investors on his schedule, however.
He also declined an offer by the International Monetary Fund to inspect Japan's banking system saying he doesn't have enough manpower to prepare. IMF managing director Horst Kohler is expected to urge Japan to accept the inspection when he meets Yanagisawa in Washington, the Nihon Keizai newspaper reported earlier yesterday.
"The more of these trips they take the more likely they won't actually do anything," said David Atkinson, a Tokyo-based Goldman Sachs Group Inc director. "Why explain to people who don't have anything to do with it."
Things were different two years ago. In 1999, Yanagisawa was in charge of a year-old agency that had put two insolvent lenders under government control, recapitalized more than a dozen others, and encouraged a series of mergers promising to streamline Japan's banking market.
Yanagisawa, a politician whose gravelly voice outsizes his small frame, had made sure what's now called the Financial Services Agency hit the ground running after it was made independent from the finance ministry in 1998. The new agency began inspecting banks and brokerages using a rule manual, casting off the cozy ties that used to pass for regulation.
In a 40-minute meeting with Greenspan that started his whirlwind US tour exactly two years ago, Yanagisawa explained his agency would help sell bad assets at banks, using the government's loan collection agency rather than forcing direct asset sales. In New York, he met nearly 200 opinion makers gathered at the Upper East Side's Council on Foreign Relations.
"Minister Yanagisawa is greatly respected in the New York financial community," said Jeffrey Shafer, the Salomon Smith Barney Inc vice chairman who introduced Yanagisawa's speech.
Schafer declined to comment on progress since.
While Yanagisawa was ditched from the agency's leadership between November 1999 and last December, its record has been mixed, analysts say.
Yanagisawa and four colleagues, who doled out the ?7.5 trillion to bail out banks, decided not to close down lenders or force out management, moves that followed bank crises in the US, South Korea and Scandinavia.
They also required more lending to small and mid-sized companies, who were often the politically connected borrowers that most needed to be cut off for banks to return to profit. Banks, which wrote off ?4 trillion in bad debt last year alone, don't have the capital to shoulder many more write-offs.
This week, the FSA said about ?6 trillion in new bad loans will be created in each of the next couple of years.
On the plus side, mergers created Mizuho Holdings Inc and other giant banks. Out of the 15 banks that received public funds in 1999, 10 have merged or announced tie-ups, to strengthen their capital and compete against their international rivals.
Foreigners have played a smaller role.
Long-Term Credit Bank of Japan Ltd was sold to a group of foreign investors led by New York's Ripplewood Holdings LLC. Since renamed Shinsei Bank Ltd, the bank has been shrunk and refocused on investment banking.
Daiwa Bank Ltd, which lost the sum of ?23.5 billion (US$190 million) last year and is rated one rung below investment grade by Standard & Poor's, has been in talks to sell a stake in itself to Mellon Financial Corp or other financial firms.
Yanasigawa has been putting a positive spin on the situation, saying the problem loan total will be cut by about half by 2004 and solved by 2007.
"We're solving the problem," the 66-year-old Yanagisawa said on Japanese TV last Sunday, pointing to charts that show declining total percentage of problem loans. "Total bad loans are decreasing."
That doesn't wash with some analysts. Goldman's Atkinson says fixing the problem could take as much as 10 more years. A recent Goldman Sachs study that examined the debt and operating profit of 2,823 publicly traded companies put the bad loan total at ?237 trillion, 50 percent more than government estimates.
"I don't think he'll say the situation will be getting better," HypoVereinsbank's Kubarych said. "If he did, no one would believe him."
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