- The Washington Times - Sunday, May 25, 2003

TOKYO (AP) — A government bailout at Japan’s fifth-biggest bank is fanning fears of another financial crisis and raising serious doubts about how truthful bigger banks are with their books.

The pumping of what likely will be billions of dollars of public money into Resona Bank follows massive financial injections into other banks in 1998 and 1999. It underlines the severe depth of Japan’s banking problems.

The government has not said how much money will go into Osaka-based Resona, which announced over the weekend its capital had dwindled so dangerously low that it must ask for public money. Japanese news reports say the amount is likely to be about $17 billion.

When top banks received public money in the late 1990s, no one in the leadership was forced to step down to take responsibility for bad management. This time, five top Resona executives have resigned.

People’s savings deposits at Resona have been guaranteed by the government, and there has been no rush by depositors for their money.

What stunned many was that the bank had been doctoring its books to inflate profits for years.

Over the weekend, the bank revised its losses under stricter accounting rules to $7.3 billion for fiscal 2002, nearly triple its earlier estimates.

“The situation at Resona is like pumping water into a bucket with a hole in the bottom,” said Masaaki Kanno, chief Japan economist at J.P. Morgan in Tokyo. “It’s only a matter of time before the nation’s big four banks will face similar problems.”

Mr. Kanno said the top four banks — which have shored up their capital by accepting investments, including those from foreign brokerages — probably will escape severe fallout from the fiscal year just ended but may need public bailouts in the months ahead.

Government officials insisted the other banks are safe and denied Japan is about to drop into a worst-case scenario of a dominolike collapse of banks, insurers and other companies.

“This is not what we will call a crisis,” said government spokesman Yasuo Fukuda, adding that Resona will be rebuilt under government guidance. “This is a move to avoid a crisis.”

The government has faced stiff resistance from the financial industry in trying to clean up bad debts at the banks to get the faltering economy back on a growth path.

The government estimates bad debt at banks to be $347 billion, but private analysts say it could be bigger. Despite regular write-offs of bad debts, they have not gone away.

The problem with Japan’s banks is simple: They have not been profitable for years and are stumbling in trying to manage lending to match risks.

A big fear is that the banks have not been telling the truth.

Before the major lender Long-Term Credit Bank collapsed in 1998, it had assured the public repeatedly that its capital was solidly above required levels.

Some analysts say the government should gain the authority to force injections of public money into banks. Otherwise, they say, the banks will refuse to acknowledge the truth until it’s too late. Now, banks first must ask for public money.

“The crisis at Resona Bank has shown that Japan’s financial world is in a far-worse state than people generally believed,” Japan’s top business daily Nihon Keizai Shimbun said in an editorial. “The government and the Bank of Japan must take action to prevent this crisis from spreading.”

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