Japan's banks go from big lenders to shrinking violets Investments not immune to woes that trouble U.S. institutions


December 23, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK — New York--First came the radios and the cars, and by the 1980s it seemed almost inevitable: where Sony and Toyota had gone, large Japanese banks would follow.

And come they did, spending billions of dollars on branch acquisitions in California, leveraged buyouts in New York and corporate loans throughout the country.

As a historical note, Japanese banks were critical in financing the disastrous acquisition of Federated Department Stores by Robert Campeau, and equally important in pulling the plug on what would have likely been the disastrous $300-a-share buyout of UAL Corp.

Unlike the illustrious record for the Japanese in other fields, vast investments by Japanese banks have not resulted in U.S. customers thinking Japanese money is better than other money. In the case of music, a teen-ager may believe only a Walkman can produce good tunes. But in the case of money, customers tend to think volume is all that counts.

And the volume of money could be on the verge of a decline. That could ultimately benefit domestic and European competitors who have long complained about aggressive Japanese lending policies scorching prudence and profit. In the meantime, it may mean fewer lenders for a U.S. economy that many think is already parched of funds, and higher rates for those who can borrow.

Evidence of this trend is only beginning to emerge and is hardly conclusive. A recent Federal Reserve Bank survey of senior loan officerssuggests "a picture of increased credit restraint, with agencies and branches of foreign banks reporting more tightening than domestic banks." Is it the Japanese?

Surveys depend on honesty; bankers are reluctant to admit when they cut back lending, and like anyone heavily in hock, recalcitrant about admitting problems because of incurring difficulties with their own lenders, the financial markets. Moreover, the data are conflicting. According to figures compiled Merrill Lynch through late November, only domestic banks have actually cut back on the critical commerce and industrial loans.

But since summer, even the Merrill figures suggest loans from foreign banks have been essentially flat, and that alone is a change from the past decade when Japanese banks played a decisive role in the growth of U.S. credit. Between 1980 and the end of last year, U.S. assets held by Japanese banks grew 22 percent a year, according to Federal Reserve Bank statistics. In comparison, the assets of Citicorp, the behemoth that spent much of the decade expanding its presence from New York into 43 states and Washington, grew at 8 percent a year.

Japanese banks, and U.S. chartered banks majority-owned by Japanese institutions, now hold in excess of 10 percent of the total banking assets in the United States, more than all other foreign lenders put together. In California, this is even more striking. The San Francisco branch of the Federal Reserve Bank reckons these institutions hold about 26 percent of overall assets, including 30 percent of the business loans.

Beginning in late 1988, growth of market share by Japanese banks halted, said Gary Zimmerman, a San Francisco Fed economist. New York bankers suggest some Japanese banks have begun taking a tougher line on their heavy exposure to junk debt acquired in the late 1980s.

And the popularity of overseas investment for the Japanese appears to be waning. More capital came into Japan than out during September and October for the first time in more than a decade, according to recently released government statistics. A key reason was foreign securities sales.

Were the Japanese banks to continue expanding in the United States, they would have to overcome obstacles that didn't exist a few years ago. Japanese banks are suffering from trauma in their domestic market that may aggravate their problems here. Once they had a marked advantage over U.S. banks because of their access to cheap capital and deposits as well as financial deregulation. But a collapse in the Tokyo stock market and fraying property values mean they now face higher capital costs at the same time their demands for capital are rising and their existing capital is eroding.

4( Citing real estate losses, declining

margins and impaired assets, Moody's Investor Services in November downgraded the credit ratings of four of the largest Japanese institutions, Sumitomo Bank Ltd., the Long-Term Credit Bank of Japan Ltd., Tokai Bank Limited and Mitsubishi Bank. All have better credit ratings than many major U.S. banks, but the rating agencies may be more optimistic than market participants.

Gauging the relative standing of a bank requires tire-kicking of the most sophisticated sort. It comes down to how much one bank is willing to pay for another's securities. Decisions of this sort are made constantly in the top floors of New York skyscrapers, but tend to be ignored by the public.

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