Trying to get a copy of the NLI research paper.
Christian
Recession Frays Japan Inc.'s Tradition Of Loyal, Long-Term Corporate Alliances By PHRED DVORAK, ROBERT A. GUTH, JASON SINGER and TODD ZAUN Staff Reporters of THE WALL STREET JOURNAL
TOKYO -- John Nicolis likes to pull up a chair behind his three top brokers on the trading floor he runs high up in an office tower here. Not only does that afford him a vista of Mount Fuji, but it gives him a ringside view of the dismantling of Japan Inc.
On a recent morning, phones ring nonstop as Mr. Nicolis's traders buy huge blocks of Japanese stocks, for as much as a half-billion dollars each. Then, they pass those blocks on to other brokers for sale to new owners. Some days, the three men at Nikko Salomon Smith Barney Ltd. cut as many as 100 deals.
For more than a century, interlocking shareholdings have defined corporate Japan. Banks have owned chunks of their borrowers, and borrowers their banks; many of these companies have banded into vast corporate groups with names like Mitsubishi, Mitsui and Sumitomo. Such ties have bound their fortunes together and protected them from takeovers. Now, that system is coming unraveled, as Japan's long recession makes these cozy relationships too costly to maintain.
The results can be seen in places like Mr. Nicolis' trading floor, but "we're just the facilitators," Mr. Nicolis says.
Indeed, Japan is lurching through one of the biggest transfers of corporate ownership in the past 50 years. The relentless selling of once-stable shareholdings is a prime force behind both the recent plunge in the benchmark Nikkei stock average and the nation's broader decade-old bear market. Thursday, the Nikkei closed at 12668.61 -- a 15-year low and just a third of its 1989 peak. The market's decline, in turn, is intensifying Japan's economic woes, which only turns up the heat on its companies to sell more of the shares they own in one another.
According to a study by NLI Research Institute, "stable" shareholdings accounted for 38% of all Japanese stocks, by value, in 1999, the most recent year for which data are available, down from 48% in 1992. In 1999 alone, one out of 12 stable shares -- defined as those held long term by financial institutions and other corporations for relationship reasons -- changed hands. And Shuhei Abe, president of Sparx Asset Management here, predicts that Japanese banks, which have already been prime sellers, will unload the equivalent of an additional 3% to 5% of the market's capitalization this year.
One big catalyst: New accounting rules this year will force banks for the first time to book their shareholdings at market value. That means that unless bankers sell more shares, they run the risk that falling stock prices will erode their capital bases and cripple their lending ability.
It isn't just money that is at stake, but Japan's entire business culture. Japanese executives tend to view companies not as assets to be bought and sold, as they often are in the West, but as communities. So, a decision to sell can be gut-wrenching.
Shunichi Suzuki, a top executive at electronics giant NEC Corp., has a job in keeping with the changing times: He unloads shares in longtime business partners whom NEC no longer deems essential. Last October, he took a train to the gritty industrial city of Kawasaki to break the bad news to two executives at one such company, both old acquaintances. "You could see the loneliness in their faces," he says.
This great unraveling is a moment of truth for Japan that could alter the way its economy and society work. Will cross-holdings recede so much that Japanese businesses, like American and European ones, are subject to hostile takeovers? Will executives have to kowtow to new shareholders who care little for the tradition of preserving jobs at the cost of profit?
Postwar Japan hasn't seen a hostile takeover of a major business. And legions of companies are trying to stop or delay the selling. But nearly every day, the sell-off is nudging corporate Japan a little closer to the Western business model.
Ikuo Yasuda, head of investment banking at Lehman Brothers in Tokyo, has begun offering takeover-defense advice to Japanese clients, including a pharmaceuticals maker. Investment bankers are orchestrating complex deals to line up new owners for stock being sold by corporations. Many of the shares are pouring into foreign hands: At the end of 1999, foreign investors held 19% of Japanese shares by value, up from 4% a decade ago. And though foreigners were among last year's big sellers, they have been buyers in 2001.
Even Japan's mightiest companies are struggling to adapt. In January, Toyota Motor Corp. quietly tried to arrange a huge private placement of Toyota shares that longtime holders were itching to sell. By doing so, it hoped to ease the blow a big sale of stock on the open market might have delivered to its stock price. But when word of the deal leaked, Toyota's shares plunged anyway. The auto maker subsequently announced a $2 billion share-buyback program, one of the biggest in Japanese history.
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