Yamaichi's U.S. unit closing Move follows parent's shutdown

firm will pay its obligations

November 25, 1997|By BLOOMBERG NEWS

NEW YORK -- Yamaichi International (America) Inc. will voluntarily shut down and pay all obligations owed customers following the voluntary closure of its parent company, Yamaichi Securities Co., David Sexton, vice chairman of the company's U.S. unit, said yesterday.

Meantime, three Yamaichi subsidiaries -- Yamaichi International Capital Management Co. Ltd., Yamaichi Investment Trust Management Co. Ltd. and Yamaichi Trust & Bank Ltd. -- were declared independent entities by Japan's Ministry of Finance, said George Dole, director of marketing for North America at Yamaichi Capital Management.

Sexton said the U.S. unit is solvent and expects that the parent company's failure won't have an adverse effect on customers of the New York-based company. Because the unit has ample assets to settle customers' accounts in the United States, it sees no need at present to seek protection of bankruptcy laws, Sexton said.

"As much as our business in New York has been profitable in the current fiscal year and the company is liquid, we expect to settle all of the outstanding business on our books in an orderly fashion," he said.

The New York office will be fully functional as long as any business remains to be settled, he said. The U.S. unit, established in 1953, runs a broker-dealer operation in fixed-income and equity products and provides corporate finance services.

About 175 employees will lose their jobs, most likely by the end of the month, he said. Dismissed employees will receive severance packages.

The U.S. unit has 209 employees: 189 people hired locally and 20 transferred from Japan.

Yamaichi expects to keep about 30 workers until all business is completed, a process that could take three to nine months, Sexton estimates.

The parent company, Japan's fourth-largest brokerage with $3.2 billion in revenue last year, is the biggest business to fail in Japan since World War II. It ends 100 years of history, brought down by payoffs to a gangster and $2.1 billion in debts it hid from investors.

"The biggest problem is the massive fraud; the Ministry of Finance is saying, 'We only learned about it recently,' " said Elizabeth Daniels, a bank analyst at Morgan Stanley Japan Ltd.

Yamaichi had no choice but to close as it became clear there would be no government bailout and that no company would take it over. Fuji Bank Ltd., Yamaichi's main shareholder and lender, had refused to provide fresh funds.

Speculation Yamaichi had large hidden losses recently knocked the stock to less than 100 yen from about 500 yen at the beginning of 1997.

Still, the ministry said it was surprised to learn of the $2 billion in losses just a few days ago. The ministry said customers' $190 billion in stocks, bonds and cash will be protected.

Yamaichi President Shohei Nozawa said at a news conference yesterday that he learned of the losses a week ago, and told the Ministry of Finance the same day. Toshiyuki Ogura, senior managing director of Fuji Bank, said Yamaichi told Fuji Bank about the losses on Oct. 6.

Dole of Yamaichi Capital Management said the investment company had been required to remain separate from the parent's brokerage business. "In retrospect, that's the best thing that could have happened to us," he said. He said the company's management will likely seek approval to buy a controlling interest in the company.

For the first time in 50 years, Japan is letting some of the biggest names in finance go under as it prepares to open the industry to competition. Unable to get a government bailout or arrange a merger and its stock plummeting, Yamaichi had no choice but to shut its doors.

Yamaichi's U.S. unit will continue to be one of the 38 primary dealers, the only dealers that trade directly with the Federal Reserve, for as long as it continues to settle transactions in the Treasury market, Sexton said.

The company currently meets requirements to be a primary dealer, he said, which includes minimum capital of $50 million.

Primary dealers also are required to bid meaningfully in Treasury auctions and provide good information to the Federal Reserve, according to Peter Bakstansky, senior vice president of public information at the New York Fed. The Fed hasn't been contacted by Yamaichi, he said.

Yamaichi plans to sell its seat at the New York Stock Exchange, which it purchased in 1986, Sexton said. It has been a primary dealer since September 1988.

Yamaichi's U.S. unit's books and records are kept separately from the parent company and are independently audited by U.S. accounting firms and subject to review by U.S. regulators, Sexton said.

Securities and other assets belonging to customers will be returned to them or transferred to an account of their choice, or transferred to a predetermined brokerage unless customers state otherwise, a Yamaichi official said.

Pub Date: 11/25/97

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