Call it the yakuza discount. When the Resolution & Collection Corp. buys a bad loan from one of Japan's banks, it now pays 70% to 100% of the assessed value of the collateral behind the loan. But there are exceptions: If the loan is linked in any way to Japan's criminal underworld, a bank might get only 60%.
One of the trickiest challenges for the RCC and other credit collectors these days is to chase away the gangsters, known as yakuza, who frequently squat in foreclosed office buildings, apartment complexes, and homes. And in the many cases where yakuza are themselves the debtors, it is difficult to get them to pay. As former gang investigator Raisuke Miyawaki puts it: "The yakuza are deeply involved in the Japanese economy, particularly the bad-loan mess."
It's not hard to see why. During the speculative excesses of the late 1980s, when land prices doubled and trebled, yakuza--who are known to punish errant members by cutting off a fingertip--migrated from the shadowy periphery of the economy right into the heart of its financial system. Sometimes they were hired by banks and property speculators as jiageya, or "land turners," to strong-arm reluctant owners into selling. Other times they engaged in real estate speculation of their own--bets that later soured.
In the lax regulatory environment of the late 1980s and early 1990s, the government either was unaware or looked the other way as Tokyo money-center banks, as well as small credit co-ops and regional lenders, consorted with the mob. Then, after the bubble burst, things got really ugly. The yakuza not only reneged on their debts but also were accused in the early 1990s of staging gangland executions of two Sumitomo and Hanwa bankers who were demanding payment.
The RCC traces its roots to the former Housing Loan Administration Corp. It was set up to collect on loans, often linked to the mob, by Japan's notoriously badly managed jusen, or thrifts. By the mid-1990s the jusen were carrying $65 billion in bad debt after speculating in everything from condos to golf courses. The RCC's team of debt collectors was backed by the full force of Japan's National Police Agency. But it was a small-time operation back then, though it did stay in the headlines thanks to its charismatic president, Kohei Nakabo, who liked to play the yakuza angle with the press.
RCC President Akio Kioi figures that 18% of the loans his agency has bought from big banks and small have had some gang connection. The RCC now routinely brings in police escorts for its debt collectors when they seize property. Intimidated, the gangs haven't retaliated in a serious way, and the problem is receding. "We have proven that we can deal with these types of people," Kioi says.
Of course, it would be wrong to assume that 18% of the acknowledged $270 billion in nonperforming loans in the Japanese banking system is mob-linked. After all, the RCC tends to buy loans that private buyers of distressed debt won't touch. Still, the yakuza-tainted loans add up to billions of dollars, and that there are so many of them is yet more evidence of how reckless the banks were in the bubble years. The discount back then surely wasn't on common sense.
By Brian Bremner in Tokyo