The Japanese Banker Who Can Say No
In 1997, Masamoto Yashiro, 71, was looking forward to a quiet retirement. Today the former Citibank Japan chief has a job that is anything but quiet: running money-center Shinsei Bank Ltd. Japanese politicians recently branded Yashiro a "national enemy." He has done the unthinkable: shown deadbeat corporate borrowers the door.
Hard-nosed banking is fine in the West, but this is Japan. And Shinsei, the reincarnation of Long-Term Credit Bank of Japan Ltd., was expected to play by the rules. But the bank, after being nationalized in 1998 with nearly $40 billion in debt, is now owned by a clutch of foreign investors, including Ripplewood Holdings, Mellon Bank, PaineWebber, and GE Capital. They are determined to set their own rules.
CUT SOME SLACK. When the government sold the bank for $1.12 billion in March, it seemed a step forward in the campaign to modernize Japan's financial industry. It still might be. But six months later, Yashiro and his team face daunting challenges. The loan book Shinsei inherited from the government is shakier than promised. And Shinsei's effort to move out of the low-margin corporate loan business and into more profitable sectors like asset management and investment banking has been a struggle.
Yashiro has had to build a retail banking operation and investment bank mostly from scratch. But he has been distracted by vociferous political pressure to cut Shinsei borrowers some slack. "I can make myself a very liked person by saying: `O.K., we'll forgive you, we love you,"' he says, but "then what happens to this bank?"
Hence Shinsei's controversial decision in July to pull out of a $6 billion debt forgiveness scheme for retail giant Sogo Corp. The provisioning costs of swallowing its share of the Sogo loan would have wiped out Shinsei's projected $180 million profit for the fiscal year ending in March. But the withdrawal triggered Japan's second biggest corporate failure in history--and earned Shinsei the enmity of the political Establishment.
It wasn't supposed to be this hard. After all, the government had assumed about half of Shinsei's debt, leaving it with supposedly sound assets of $120 billion. Shinsei had a strong capital adequacy ratio of 13%, well above the globally mandated 8%, as well as cash for growth. Yet trouble wasn't far off. One borrower, consumer-finance company Life Co., revealed a $1 billion negative net worth, double the estimate. Shinsei cut it off. Then when the bank opted to sell back its Sogo loan to the government, as it was entitled to do, it earned a drubbing from the ruling Liberal Democratic Party.
Not that Yashiro is going to fold. Companies without viable turnaround plans will be sent packing, he says with a grin, regardless of the backlash: "I have a very tough skin."
Credited with building up Citibank Japan's retail banking franchise, Yashiro was an obvious choice to run Shinsei. His goal is to achieve the same 120- to 160-basis-point return on assets that top Western banks earn, versus 30 in Japan. To get there, he has beefed up the consumer side by setting up telephone banking, offering mutual funds, and laying plans for online banking in 2001. On the investment banking side, Shinsei hopes to leverage its lending relationship with 450 corporate clients by offering to repackage and sell their assets and by helping them hedge against price shocks and currency moves.
Shinsei is a long way from taking on the major merger and acquisition advisers. And it has stiff local competition. Mizuho Holdings Inc., the three-way alliance among Industrial Bank of Japan, Fuji Bank, and Dai-Ichi Kangyo, is using its $1.2 trillion in assets to target similar niches.
Still, Shinsei seems to have the resources and talent to reemerge as a force in Japanese banking. Yashiro, who expects to take the bank public, even thinks he can deliver a profit for the government on its $2.3 billion worth of preferred shares. Of course, it would help if the politicians would stop carping from the sidelines.