The Japanese Minister Who Can Say No

Hakuo Yanagisawa is making bankers sweat bullets

Bankers loathe him. Investors lionize him. But everyone in Japanese finance agrees: Hakuo Yanagisawa is the man of the hour. The reason, as Yanagisawa himself explains: "Maybe I'm the only one who can promote restructuring in Japan's financial industry."

To jaded foreign observers, it seems Tokyo has long specialized in restructuring plans that change nothing. But since being tapped by Prime Minister Keizo Obuchi as Financial Reconstruction Minister last December, 63-year old Yanagisawa has stunned everyone with his energy. As head of the Financial Reconstruction Commission (FRC), he has forced mergers, shut down banks, and rammed through tough new regulations. And he's not done yet. On Feb. 15, the FRC is expected to tell the banks how much they will get in restructuring funds from the government. How Yanagisawa doles out this aid will dictate the course of the country's recovery.

Although Yanagisawa and his aides answer only to the Prime Minister, most bankers had assumed he would follow secret directives from the Ministry of Finance, which has long opposed a draconian solution to the bank crisis. Yanagisawa, after all, worked at MOF for many years. He also scarcely looked like a radical reformer. After graduating from the University of Tokyo's law department in 1961, he entered MOF and later won election to the Diet as a Liberal Democratic Party member. He steadily climbed up the party hierarchy, but was not considered Premier material. Until recently, he seemed destined for a quiet retirement with his wife, a popular wood-block artist.

But Yanagisawa has depth. He is well-versed in finance and spends his free time plowing through economic tomes. He also did a stint in New York with MOF's international finance consul and came to admire the dynamism of U.S. financial markets. He's eager to insert some of this dynamism into Japan's banks. His army of lawyers, accountants, and bank examiners is ruthlessly grilling bank presidents about the extent of their liabilities--the kind of interrogations no one at MOF ever dreamed of trying. "We have to persuade them to give us public money," says one Sumitomo Trust & Banking executive, "and they are very tough."

"CAUSING PANIC." To cut the number of money center banks from 19 to 9, Yanagisawa already has pressured the banks to form a half-dozen alliances involving such big names as Sakura Bank, Sanwa Bank, and Bank of Tokyo-Mitsubishi. "If the banks don't change, they will lose their competitiveness," he says. Yanagisawa is signaling that the foreigners should lend him a hand. Long-Term Credit Bank of Japan Ltd. has hired Goldman, Sachs & Co. to shop it around and Yanagisawa says he is open to a non-Japanese buyer. "More mergers should be promoted," he says, "as in the U.S."

Yanagisawa's broad aim is to tear down the walls separating Japan's traditional long-term credit, commercial, and trust banks. The new mergers and alliances will produce banks that offer clients a mix of traditional retail banking, pension management, mutual funds, and perhaps investment banking services. Meanwhile, Yanagisawa must focus next on the troubles that are plaguing the regional banks, the life insurers, and the brokers.

This reformer's big problem is the high class of enemies he is making. Political analyst Takao Iwami says his policies are "causing panic in the banking community." And the scuttlebutt is that Finance Minister Kiichi Miyazawa wants Yanagisawa to engineer a softer landing for the banks. Yanagisawa may be bending some: He has not completely shot down proposals from LDP leaders to forgive some loans to big lenders. But in almost all cases, he is still talking tough and acting tough. Bankers, be warned.

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