How Lehman Brothers did in Japan. Aggressive way of doing things was not well accepted.
9, 26. 2008
The leading U.S. securities company Lehman Brothers went bankrupt and its Japan unit filed for protection with the Tokyo District Court under the Civil Rehabilitation Law on Sept. 16, 2008. Its debt had amounted to 3.4 trillion yen as of the end of August, according to Teikoku Databank. The Financial Services Agency immediately launched survey on the impact of the bankruptcy on Japanese financial institutions. Lehman Brothers was very active in Japan making such moves as extending support for the rehabilitation of The Daiei, Inc. and M&A by livedoor Co. Its bankruptcy has come as a major shock to the Japanese financial industry. How then Lehman Brothers was operating in the Japanese financial world?
No small impact: Financial Services Agency
According to reports presented by Lehman Brothers to the U.S. Bankruptcy Court, financing extended to Lehman Brothers by Japanese financial institutions amount to 1.67 billion dollars (about 170 billion yen). The largest amount of such financing was extended by Aozora Bank at 463 million dollars (about 48 billion yen). Other Japanese financial institutions mentioned as involved were Mizuho Corporate Bank, Shinsei Bank, Sumitomo Mitsui Bank, Shinkin Central Bank, Chuo Mitsui Trust and Banking and Nippon Life Insurance.
An executive at a foreign-invested securities company said, however, that Japanese banks must have been doing considerably active business with Lehman Brothers to the last moment of the bankruptcy as the business failure occurred so suddenly. The exposure of the Japanese companies is thus certain to be much bigger than so far disclosed, he said.
Concerning the debt of the Japan unit of 3.4 trillion yen, a securities analyst said that debt of 3 trillion yen can easily be reached if it includes derivatives. The essence is thus its contents which are not clear at this point, he said. If it is financing, collaterals must be secured or arrangements were made to offset it, and there should not be a major adverse effect, he said.
Officials at the Financial Services Agency said that the impact would not be small if the securitized products, shares and debentures issued by Lehman Brothers and derivatives transactions are taken into consideration. Not only banks but also nonbanks and companies of other industries might also be involved, they said.
Lehman Brothers floated samurai bonds (yen-based corporate bonds) totaling 195 billion yen, but they were all sold to institutional investors and thus they would have no impact on individual investors.
Do anything for fame
Lehman Brothers was not talked well in Japan. At one time it acquired shares of Daiei from Advantage Partners to help rehabilitate Daiei and become Daiei's major shareholder. It also extended financing to livedoor to help it buy out Nippon Broadcasting System.
Japanese banks tend to shun such "out of ordinary" companies as Daiei and livedoor. It was not accepted favorably in Japan that Lehman Brothers gained fame by trying to impress the Japanese public of its presence through supporting the rehabilitation of the newly emerging but extremely well known company.
On June 27, 2008, the consumer finance company Aiful Corp. lodged a strong protest against the analyst report of Lehman Brothers, which said that the Sumitomo Trust and Banking, the main bank of Aiful, does not have the intention of assisting Aiful, not to speak of buying out. Aiful will thus face difficulty of repaying its debt, the report said. In making the protest, Aiful said it was considering filing for litigation.
Later, in a report dated Aug. 1, Lehman Brothers changed its view and retracted the analysis made in the June report. Aiful officials said, however, the possibility of litigation is still being considered after Lehman Brother has gone under.
Lehman Brothers was making its all-out efforts to gain fame in Japan, says an analyst at a foreign-invested firm. Lehman Brothers' analysts made reports mostly for showing individuality and attention-getting, he said. Merrill Lynch and Goldman Sacs sometimes systematically spread reports with intentional contents, but it is confined to the limit of individual plays and suspicious in case of Lehman Brothers, he said.
A person engaged in consumer financing said it was likely that Lehman Brothers was aiming at expanding its business using what was reported by its analyst as the leverage as consumer financing firms were doing their utmost to collect funds in the case of Aiful.
Good or bad, Lehman Brothers seems to have been obsessed with business expansion by gaining fame. It was ready to take aggressive means whenever it was necessary to achieve its purpose.