Japan Nervously Awaits Yamaichi Fallout

Japanese authorities on Sunday rushed to put together a plan for the likely shutdown of Yamaichi Securities Co Ltd and nervously awaited the judgment of international markets on Asias newest economic crisis.

With markets in Japan closed on Monday for a national holiday, the key first judgments will come from outside in the unforgiving markets of Hong Kong, London and New York.

Financial sources said after a last-ditch review Japans oldest brokerage had determined there was no chance of survival under the crush of a credit crunch, shrinking business and high-profile scandals involving corporate racketeers.

A decision on how to shut the 100-year-old institution to protect depositors and cause least turmoil would be announced on Monday, possibly even Sunday night, Japanese media said.

Directors of Yamaichi Securities Co on Saturday confirmed their intention to submit an application to the Finance Ministry to cease operations, the Nihon Keizai said on Sunday.

The decision, reached at an extraordinary board meeting,states that seeking approval to wind up operations is their principal policy for dealing with the precarious financial situation.

Lights burned late on the weekend in Yamaichi headquarters, the smallest of Japans Big Four brokerages, the Ministry of Finance and the Bank of Japan, key players in handling the biggest financial failure since World War Two.

The Finance Ministry and central bank contacted overseas authorities to alleviate global concerns especially in U.S. and European markets.

The Bank of England said it was watching events closely. finance minister Hiroshi Mitsuzuka cancelled all appointments to deal with a crisis which follows the collapse in the past month of second-tier brokerage Sanyo Securities Co Ltd and 10th-ranking commercial bank Hokkaido Takushoku Bank.

Kyodo News Service said Yamaichis demise would leave an estimated three trillion yen ($23.8 billion) in debts.

To repay customers, the Bank of Japan plans an unsecuredloan of several hundred billion yen, the Nihon Keizai said.

Finger pointing has already started about what was behind the collapse in its centenary year of a Japanese household name that has a staff of 7,500 at home and in 33 branches abroad.

Takeo Nishioka, secretary general of the main opposition New Frontier Party, said Prime Minister Ryutaro Hashimotos ruling Liberal Democratic Party had not acted decisively enough to ensure financial stability in Japan.

The Yamaichi Securities situation has undermined the trust of Japanese investors and international financial markets, Nishioka said on national television.

The criticism added up to a unanimous view that Japans financial system was in urgent need of reform, deregulation and closer supervision and there was more bad news to come.

The Nihon Keizai Shimbun said Yamaichi demonstrated Japans failure to reform banking and financial systems after the collapse of the 1980s bubble economy when Japanese financial institutions were riding high.

This will not end with the Yamaichi Securities situation, the Nikkei warned.

Yamaichis crisis has become more murky since a Finance Ministry official said on Saturday there were suspicions of vast off-balance sheet liabilities exceeding 200 billion yen ($1.58 billion) from illegal trading practices in which brokerages temporarily shift investment losses from one client to another in order to prevent a favoured customer from having to report losses.

According to Yamaichi sources, the brokerage has hidden from financial regulators the off-balance-sheet debts of more than 200 billion yen at its dummy companies on the British dependency of the Cayman Islands, Kyodo said.

Yamaichi sources said some of the firms employees had already sought legal advice on personal and business contingencies ahead of Mondays decision.

Carelessness on the part of the management is to blame, a male employee told Kyodo as he rushed in to Yamaichis Tokyo headquarters to join workers dealing with the crisis.

A 50-year-old graphic designer who says he has been a customer of the brokerage for about 20 years said he did not know where to put his money any longer.

I dont trust banks either, so I suppose I have no choice but to take my money to the postal saving service. he said.