By Victor Mallet
Published: October 21 2008 03:00 Last updated: October 21 2008 03:00
Emilio Botín, chairman of Santander and the third person of that name to head the Spanish bank since it was founded in 1857, makes the art of banking sound deceptively simple even in the midst of a global financial crisis.
The world's banks, Mr Botín said last week, needed to focus on customers, make the most of recurrent business, manage risks prudently and reinforce corporate governance.
Under Mr Botín, now 74, Santander has expanded rapidly in Europe and the Americas over the past two decades. Yet envious executives at rival banks are asking whether Mr Botín, for all his sermons, has overreached himself with his latest round of acquisitions.
Merrill Lynch yesterday listed Santander as one of the big European banks that might need to raise more capital.
Shares in Santander, the biggest bank in the eurozone by market capitalisation, have been pummelled along with those of other banks during the crisis.
Santander, however, has emerged not only as a survivor but as a predator exploiting the credit crunch to purchase weaker banks.
José Antonio Alvarez, chief financial officer, said recently that Santander could benefit from a "winner takes all" market in the crisis "by rescuing falling banks at attractive prices".
Five days later, Santander announced a $1.9bn deal to buy Sovereign Bancorp of the US.
Earlier, Mr Botín had boasted to shareholders: "We are really in a magnificent position compared with our competitors."
Having bought Abbey National, Alliance & Leicester and the deposits and branches of the nationalised Bradford & Bingley, Santander is now a force in British retail banking as well as in Spain and Latin America.
Santiago López Díaz, an analyst for Credit Suisse, says the crisis has given Santander the chance to make acquisitions far more cheaply than in its dozens of previous deals.
"Right now Santander, in relative terms, is in a much better position than most of the European banks," he says.
Santander has succeeded with the help of a lot of skill and a little luck.
As Mr Botín likes to remind his listeners, risk control requires hard work, not fancy innovations.
Five directors on Santander's risk management committee meet twice a week for at least four hours. The bank's good fortune in this crisis is in its focus on retail rather than investment banking, and in the Bank of Spain's determined opposition as national regulator to the off-balance-sheet assets that turned toxic and sank banks elsewhere.
That still leaves Santander, which aims to increase net profit this year by 10 per cent to €10bn ($13.3bn), exposed to any weakness in key markets such as the UK, Spain and Latin America, and to the wholesale financing drought that is affecting the entire international banking system.
Even in these areas, however, analysts believe the risks are limited.
In Spain, for example, property developers, the borrowers most exposed to the country's residential property crash, account for only 6.8 per cent of Santander's portfolio of well provisioned Spanish assets.
Santander is a heavy user of wholesale finance - it needs more than a quarter of the €80bn that matures and needs refinancing for Spanish banks next year, according to one market analyst - but it has industrial assets to sell if needed.
Its senior executives, furthermore, helped persuade José Luis Rodríguez Zapatero, the Socialist prime minister, to promise up to €150bn in asset purchases and state guarantees to keep the country's banks liquid up to the end of 2009.
"We feel comfortable with their [Santander's] liquidity position," says Maria Cabanyes of Moody's, the credit rating agency.
One concern is that Santander might have extended too much capital on acquisitions, leaving it vulnerable in a world populated by rival banks that have received emergency capital injections from their respective governments.
The latest deals, however, have only a small impact on Santander's core capital ratio - a reduction of 20 basis points in the case of the Sovereign deal - and senior executives say they will be devoting their time to consolidating what they have bought and rebuilding core capital from just under 6 per cent now to over 7 per cent at the end of next year.
Thereafter, the chances are that Santander, once an obscure provincial bank, will set out again on the global acquisition trail under Mr Botín or his successors.
Copyright The Financial Times Limited 2008
miércoles, 22 de octubre de 2008
martes, 21 de octubre de 2008
Are we in danger of turning Japanese?
Japan's stock market lost more than three quarters of its capital over two decades - it might be enough to bring tears to the eyes of even the most inscrutable investor.
'Pushing on a string'' might sound like a daft if harmless activity but I fear it will be seriously bad news for all of us if the phrase ever enters mainstream usage.
Devotees of the dismal science of economics use it to describe the point at which interest rate cuts and other attempts to boost activity - such as pumping billions into bust banks - fail to restore confidence.
For a Chancellor or Prime Minister to discover he is pushing on a string is akin to a sailor being blown onto a leeward shore and, seeing he is running out of sea room, discovering that the auxiliary engine will not start.
I first heard the phrase nearly 20 years ago when the Japanese stock market began its long decline from a peak of 38,000 in the Nikkei index, despite a series of increasingly desperate rate cuts. It came to mind again this week when the Tokyo market fell by another 11pc overnight to stand below 8,500 on Thursday. Losing more than three quarters of your capital over two decades might be enough to bring tears to the eyes of even the most inscrutable investor.
While we should always take a long-term view of equity-based investment, there is a limit to what human flesh can bear - or, as the economist John Maynard Keynes put it: "The market can stay irrational longer than you can stay solvent.''
Here and now, the Japanese experience is a terrifying reminder that some stock market sagas do not have a happy ending - as I pointed out in this newspaper in August, 2007, when the credit crunch began to bite.
Again, in an article headed "Western banks sink in the shadow of the rising sun'' in March this year, I wrote: "First there was Northern Rock in Newcastle; now there is Bear Stearns in New York. With banks being bailed out by taxpayers on both sides of the Atlantic, no wonder investors have that sinking feeling.
"While government intervention has prevented either bank going bust, it might be dangerously complacent to underestimate the seriousness of the global credit crisis. At worst, we could be looking at a repeat of what happened in Japan 19 years ago. Then, as now, banks got into trouble with rash lending against what proved to be grossly inflated property values.
"Before the bubble burst, the ground occupied by the Imperial Palace in Tokyo was valued at rather more than all the real estate in California and the shares on the Nikkei index were briefly priced at more than all those in America.
"Bearish analysts say the main reason that the market has failed to recover is that Japanese banks were propped up by government intervention, which allowed huge losses on bad debts to remain unrealised. International institutions were not fooled and the guilty banks have been unable to borrow - or lend - on normal terms since then.
"Once confidence has been destroyed it is very difficult to restore. Without confidence, there can be no credit - at any price.
"Nobody knows what share prices will do next week or next year. That does not matter for most pension savers who do not plan to retire next week or next year. History strongly suggests the best returns will be received by those who wait for the odds to work in their favour. Selling now will certainly turn paper losses into real ones.''
That is as true now as it was then. Unfortunately, it is also a fact that shares in London have lost about a third of their value since then.
No wonder more people are beginning to worry about parallels with the Land of the Rising Sun - and whether its past may foreshadow our future.
Devotees of the dismal science of economics use it to describe the point at which interest rate cuts and other attempts to boost activity - such as pumping billions into bust banks - fail to restore confidence.
For a Chancellor or Prime Minister to discover he is pushing on a string is akin to a sailor being blown onto a leeward shore and, seeing he is running out of sea room, discovering that the auxiliary engine will not start.
I first heard the phrase nearly 20 years ago when the Japanese stock market began its long decline from a peak of 38,000 in the Nikkei index, despite a series of increasingly desperate rate cuts. It came to mind again this week when the Tokyo market fell by another 11pc overnight to stand below 8,500 on Thursday. Losing more than three quarters of your capital over two decades might be enough to bring tears to the eyes of even the most inscrutable investor.
While we should always take a long-term view of equity-based investment, there is a limit to what human flesh can bear - or, as the economist John Maynard Keynes put it: "The market can stay irrational longer than you can stay solvent.''
Here and now, the Japanese experience is a terrifying reminder that some stock market sagas do not have a happy ending - as I pointed out in this newspaper in August, 2007, when the credit crunch began to bite.
Again, in an article headed "Western banks sink in the shadow of the rising sun'' in March this year, I wrote: "First there was Northern Rock in Newcastle; now there is Bear Stearns in New York. With banks being bailed out by taxpayers on both sides of the Atlantic, no wonder investors have that sinking feeling.
"While government intervention has prevented either bank going bust, it might be dangerously complacent to underestimate the seriousness of the global credit crisis. At worst, we could be looking at a repeat of what happened in Japan 19 years ago. Then, as now, banks got into trouble with rash lending against what proved to be grossly inflated property values.
"Before the bubble burst, the ground occupied by the Imperial Palace in Tokyo was valued at rather more than all the real estate in California and the shares on the Nikkei index were briefly priced at more than all those in America.
"Bearish analysts say the main reason that the market has failed to recover is that Japanese banks were propped up by government intervention, which allowed huge losses on bad debts to remain unrealised. International institutions were not fooled and the guilty banks have been unable to borrow - or lend - on normal terms since then.
"Once confidence has been destroyed it is very difficult to restore. Without confidence, there can be no credit - at any price.
"Nobody knows what share prices will do next week or next year. That does not matter for most pension savers who do not plan to retire next week or next year. History strongly suggests the best returns will be received by those who wait for the odds to work in their favour. Selling now will certainly turn paper losses into real ones.''
That is as true now as it was then. Unfortunately, it is also a fact that shares in London have lost about a third of their value since then.
No wonder more people are beginning to worry about parallels with the Land of the Rising Sun - and whether its past may foreshadow our future.
Financial crisis is shifting power to Asia, says HSBC boss Stephen Green
THE crisis consuming global markets is part of a fundamental shift of power from the US to emerging economies in China and the Middle East, according to Stephen Green, chairman of HSBC.
By Katherine Griffiths, Financial Services Editor Last Updated: 7:30AM BST 21 Oct 2008
Speaking at a financial conference in Dubai, the banker also condemned the financial model that has led to the crisis as "bankrupt".
The crisis, probably the worst since the 1929 Wall Street crash, will offer several lessons, Mr Green said, but added that the underlying trend of movement from West to East would "not be derailed".
"The rebalancing of the global economy towards Asia, home to over half the world's population, and its implications for the Middle East, is the shift that will affect financial markets most profoundly," he said.
He pointed to the implosion in sub-prime mortgage lending in the US as the flashpoint but added it was "far from the only villain in town".
"The complexity and opacity of certain financial instruments reached a point where even senior and experienced banks had trouble understanding them, let alone investors," he said.
Sub-prime lending exploded because bankers found ways to package up the debts and sell them on. Driving the process was Western consumption, fuelled by cash pumped into the US and elsewhere from developing countries, where savings surpluses have built up, Mr Green said.
The HSBC chairman also criticised the bonus culture at banks, "which has so often encouraged too much opacity and excessive risk-taking".
He added that the "high-leverage model of finance is bankrupt" and said securitisation of loans would survive. "You cannot bring the whole of the world's capital markets back on to banks' balance sheets."
HSBC, one of the world's best capitalised major banks, has refocused on Asia and developing markets after a disastrous foray into US sub-prime lending. However, problems at its US sub-prime division, Household International, emerged much earlier than at other lenders and the bank is seen as having weathered the storm well.
HSBC yesterday struck a £351m deal to buy almost 90pc of an Indonesian lender, Bank Ekonomi.
By Katherine Griffiths, Financial Services Editor Last Updated: 7:30AM BST 21 Oct 2008
Speaking at a financial conference in Dubai, the banker also condemned the financial model that has led to the crisis as "bankrupt".
The crisis, probably the worst since the 1929 Wall Street crash, will offer several lessons, Mr Green said, but added that the underlying trend of movement from West to East would "not be derailed".
"The rebalancing of the global economy towards Asia, home to over half the world's population, and its implications for the Middle East, is the shift that will affect financial markets most profoundly," he said.
He pointed to the implosion in sub-prime mortgage lending in the US as the flashpoint but added it was "far from the only villain in town".
"The complexity and opacity of certain financial instruments reached a point where even senior and experienced banks had trouble understanding them, let alone investors," he said.
Sub-prime lending exploded because bankers found ways to package up the debts and sell them on. Driving the process was Western consumption, fuelled by cash pumped into the US and elsewhere from developing countries, where savings surpluses have built up, Mr Green said.
The HSBC chairman also criticised the bonus culture at banks, "which has so often encouraged too much opacity and excessive risk-taking".
He added that the "high-leverage model of finance is bankrupt" and said securitisation of loans would survive. "You cannot bring the whole of the world's capital markets back on to banks' balance sheets."
HSBC, one of the world's best capitalised major banks, has refocused on Asia and developing markets after a disastrous foray into US sub-prime lending. However, problems at its US sub-prime division, Household International, emerged much earlier than at other lenders and the bank is seen as having weathered the storm well.
HSBC yesterday struck a £351m deal to buy almost 90pc of an Indonesian lender, Bank Ekonomi.
viernes, 10 de octubre de 2008
Nepotism?
Diet 'juniors' and Japan's politics of descent
By PHILIP BRASOR
One of the busiest people on TV right now is Daigo Naito, a 30-year-old who dresses and gesticulates like a rock star while speaking in the tones of a narcotized 16-year-old. Daigo isn't a comedian, though his droning delivery elicits laughs, and he's not really a rock star, though he did start his show biz career with the intention of becoming one. His ubiquity is based on one thing: pedigree.
Daigo is the grandson of late Prime Minister Noboru Takeshita, and his career as a TV star took off when Takeshita's widow gave him permission to use grandpa's name when selling himself as . . . whatever. For a decade before that, Daigo struggled to make it in the world of visual-kei, a rock subgenre whose musicians dress like manga characters and play sweetened heavy metal. He fronted a group called Jzeil (pronounced "jail") and recorded an album written and produced by superstar Kyosuke Himuro, but nothing came of it. As soon as he revealed that he was the grandson of one of the most notorious "dons" of the Liberal Democratic Party, however, offers for television work poured in.
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Progeny of famous people are as common in show business as divorce lawyers, but most "juniors" put in the appearance of having some sort of skill, be it acting, singing or weather reporting. Daigo has only the Takeshita name, which isn't his since his mother, Noboru's daughter, gave it up when she married. His blase-rocker act is meant to be an ironic comment on his respectable lineage, but there's no disrespect involved. Daigo owes his dead grandfather his livelihood.
Daigo could have become a politician, and he may run for office someday after his entertainment career dries up. As with show biz, the sons and daughters of politicians don't need talent or experience to join the "family business," and it's pretty easy. According to a recent editorial in the Asahi Shimbun, "the starting line for seshu (descendant) candidates is much closer to the finish line than it is for other candidates."
Since seshu candidates have ready-made local support and an existing political machine, their opponents have their work cut out for them. Over decades, the number of seshu politicians has snowballed, which means the government has turned into a club whose members possess the same narrow interests and values, which aren't necessarily shared by average voters. The Asahi says that the Lower House of the Diet is now about 30 percent seshu, while the Sankei Shimbun reports that the ruling Liberal Democratic Party is almost 50 percent seshu. Eighty percent of Lower House candidates in 2005 who happened to be the children or grandchildren of national politicians were victorious.
The media has never ignored this tendency, but since the process that makes it possible is democratic in principle, criticism is muted. Besides, seshu politicians are by definition celebrities, which makes it more fun to cover them. The new Aso Cabinet, however, has provoked more than the usual concern since 11 of the 18 ministers, including Aso himself, are seshu politicians. Not only that, the last four prime ministers have been seshu politicians, with the most recent three either sons or grandsons of past prime ministers.
None of Junichiro Koizumi's forebears made it to the top, but he may be the consummate seshu politician. He is the third generation of his family to represent his district in Kanagawa Prefecture, and now his second son, Shinjiro, is being groomed for his seat, since his oldest boy has already gone the Daigo route and become an actor. Koizumi Sr.'s arrogant sense of entitlement even shocks some members of the LDP. Former Nagano governor and professional gadfly Yasuo Tanaka has announced he will run against Shinjiro, since the only person who can beat a junior is a celebrity.
In an interview in the Sankei, political analyst Taichi Sakaiya explained that the LDP's preference for less risky candidates favors seshu politicians, who attain Cabinet posts sooner than nonseshu politicians — and not because they start their careers earlier. The LDP contains competing factions, and it's difficult to satisfy all of them through strategic ministry appointments. No one in the LDP, however, objects when seshu colleagues are appointed before nonseshu colleagues who have been in the Diet longer. There is no "jealousy," says Sakaiya, who believes that Aso appointed so many seshu ministers in order to avoid intraparty strife prior to the next general election.
Juniors are also said to be insulated from everyday reality, which is why that reporter last month asked former Prime Minister Yasuo Fukuda if he had ever looked at himself objectively. Fukuda, the son of former Prime Minister Takeo Fukuda, had no idea what the reporter was getting at and uncharacteristically lost his composure. This goes along with Sakaiya's comment that seshu politicians tend to be incautious with comments because they are always surrounded by like-minded people, but the practice of shooting from the hip seems general in the LDP regardless of whether or not dad was a politician.
Nariaki Nakayama, who quit his transport ministry post after only five days due to outrageous remarks he made about Japan's largest teachers union and other things, is not a seshu politician, but his ascendancy in the LDP had much to do with his older wife, Kyoko, an Upper House member who achieved political stardom when she became the government's expert on the North Korean abduction issue. Supposedly, Nakayama believed his wife's favorable reputation gave him license to rail against things he felt strongly about.
Last week the pundits on TBS's "wide show" "Ping Pong" speculated that Kyoko was busy making the rounds of people her husband had offended and apologizing for his remarks, like a mother visiting the neighbors after her little boy misbehaves in public. You don't have to be a junior to be a spoiled brat.
By PHILIP BRASOR
One of the busiest people on TV right now is Daigo Naito, a 30-year-old who dresses and gesticulates like a rock star while speaking in the tones of a narcotized 16-year-old. Daigo isn't a comedian, though his droning delivery elicits laughs, and he's not really a rock star, though he did start his show biz career with the intention of becoming one. His ubiquity is based on one thing: pedigree.
Daigo is the grandson of late Prime Minister Noboru Takeshita, and his career as a TV star took off when Takeshita's widow gave him permission to use grandpa's name when selling himself as . . . whatever. For a decade before that, Daigo struggled to make it in the world of visual-kei, a rock subgenre whose musicians dress like manga characters and play sweetened heavy metal. He fronted a group called Jzeil (pronounced "jail") and recorded an album written and produced by superstar Kyosuke Himuro, but nothing came of it. As soon as he revealed that he was the grandson of one of the most notorious "dons" of the Liberal Democratic Party, however, offers for television work poured in.
window.google_render_ad();
Progeny of famous people are as common in show business as divorce lawyers, but most "juniors" put in the appearance of having some sort of skill, be it acting, singing or weather reporting. Daigo has only the Takeshita name, which isn't his since his mother, Noboru's daughter, gave it up when she married. His blase-rocker act is meant to be an ironic comment on his respectable lineage, but there's no disrespect involved. Daigo owes his dead grandfather his livelihood.
Daigo could have become a politician, and he may run for office someday after his entertainment career dries up. As with show biz, the sons and daughters of politicians don't need talent or experience to join the "family business," and it's pretty easy. According to a recent editorial in the Asahi Shimbun, "the starting line for seshu (descendant) candidates is much closer to the finish line than it is for other candidates."
Since seshu candidates have ready-made local support and an existing political machine, their opponents have their work cut out for them. Over decades, the number of seshu politicians has snowballed, which means the government has turned into a club whose members possess the same narrow interests and values, which aren't necessarily shared by average voters. The Asahi says that the Lower House of the Diet is now about 30 percent seshu, while the Sankei Shimbun reports that the ruling Liberal Democratic Party is almost 50 percent seshu. Eighty percent of Lower House candidates in 2005 who happened to be the children or grandchildren of national politicians were victorious.
The media has never ignored this tendency, but since the process that makes it possible is democratic in principle, criticism is muted. Besides, seshu politicians are by definition celebrities, which makes it more fun to cover them. The new Aso Cabinet, however, has provoked more than the usual concern since 11 of the 18 ministers, including Aso himself, are seshu politicians. Not only that, the last four prime ministers have been seshu politicians, with the most recent three either sons or grandsons of past prime ministers.
None of Junichiro Koizumi's forebears made it to the top, but he may be the consummate seshu politician. He is the third generation of his family to represent his district in Kanagawa Prefecture, and now his second son, Shinjiro, is being groomed for his seat, since his oldest boy has already gone the Daigo route and become an actor. Koizumi Sr.'s arrogant sense of entitlement even shocks some members of the LDP. Former Nagano governor and professional gadfly Yasuo Tanaka has announced he will run against Shinjiro, since the only person who can beat a junior is a celebrity.
In an interview in the Sankei, political analyst Taichi Sakaiya explained that the LDP's preference for less risky candidates favors seshu politicians, who attain Cabinet posts sooner than nonseshu politicians — and not because they start their careers earlier. The LDP contains competing factions, and it's difficult to satisfy all of them through strategic ministry appointments. No one in the LDP, however, objects when seshu colleagues are appointed before nonseshu colleagues who have been in the Diet longer. There is no "jealousy," says Sakaiya, who believes that Aso appointed so many seshu ministers in order to avoid intraparty strife prior to the next general election.
Juniors are also said to be insulated from everyday reality, which is why that reporter last month asked former Prime Minister Yasuo Fukuda if he had ever looked at himself objectively. Fukuda, the son of former Prime Minister Takeo Fukuda, had no idea what the reporter was getting at and uncharacteristically lost his composure. This goes along with Sakaiya's comment that seshu politicians tend to be incautious with comments because they are always surrounded by like-minded people, but the practice of shooting from the hip seems general in the LDP regardless of whether or not dad was a politician.
Nariaki Nakayama, who quit his transport ministry post after only five days due to outrageous remarks he made about Japan's largest teachers union and other things, is not a seshu politician, but his ascendancy in the LDP had much to do with his older wife, Kyoko, an Upper House member who achieved political stardom when she became the government's expert on the North Korean abduction issue. Supposedly, Nakayama believed his wife's favorable reputation gave him license to rail against things he felt strongly about.
Last week the pundits on TBS's "wide show" "Ping Pong" speculated that Kyoko was busy making the rounds of people her husband had offended and apologizing for his remarks, like a mother visiting the neighbors after her little boy misbehaves in public. You don't have to be a junior to be a spoiled brat.
Another one bites the dust! Vol.2
La aseguradora Yamato, primera financiera japonesa en quiebra.
Efe - Yokio - 10/10/2008
Según la agencia local Kyodo, la compañía presentó hoy su solicitud de bancarrota a las autoridades niponas después de que la Bolsa de Tokio cayera en picado durante toda esta semana hasta acumular pérdidas de más del 40% desde el inicio del 2008.
La compañía japonesa, cuyas deudas ascienden a 269.500 millones de yenes (2.719 millones de dólares), pidió amparo a la Corte judicial de Tokio bajo la ley promulgada en el año 2000 para la protección de instituciones financieras con problemas. Esa ley permite que ese tribunal dé la orden de que se mantengan los activos de la aseguradora.
Tras el anuncio de hoy, Yamato se ha convertido en la octava compañía de seguros japonesa que quiebra desde el final de la II Guerra Mundial y en la primera compañía financiera que anuncia su bancarrota desde que la aseguradora Tokyo Life Insurance cayera en el 2001.
Yamato Life disponía de valores por un total de 283.100 millones de yenes (2.857,6 millones de dólares) y de pólizas de seguro valoradas en 1,07 billones de yenes (10.856 millones de dólares) a finales del año fiscal 2007, que finalizó en marzo del 2008, según el diario "Nikkei".
Efe - Yokio - 10/10/2008
Según la agencia local Kyodo, la compañía presentó hoy su solicitud de bancarrota a las autoridades niponas después de que la Bolsa de Tokio cayera en picado durante toda esta semana hasta acumular pérdidas de más del 40% desde el inicio del 2008.
La compañía japonesa, cuyas deudas ascienden a 269.500 millones de yenes (2.719 millones de dólares), pidió amparo a la Corte judicial de Tokio bajo la ley promulgada en el año 2000 para la protección de instituciones financieras con problemas. Esa ley permite que ese tribunal dé la orden de que se mantengan los activos de la aseguradora.
Tras el anuncio de hoy, Yamato se ha convertido en la octava compañía de seguros japonesa que quiebra desde el final de la II Guerra Mundial y en la primera compañía financiera que anuncia su bancarrota desde que la aseguradora Tokyo Life Insurance cayera en el 2001.
Yamato Life disponía de valores por un total de 283.100 millones de yenes (2.857,6 millones de dólares) y de pólizas de seguro valoradas en 1,07 billones de yenes (10.856 millones de dólares) a finales del año fiscal 2007, que finalizó en marzo del 2008, según el diario "Nikkei".
martes, 7 de octubre de 2008
Japan Version Of Subprime Crisis May Be Emerging
TOKYO (Nikkei)--Re-plus Inc., a rent guarantor, has gone bust amid successive real estate-related business failures, prompting worried industry officials to see the bankruptcy as heralding the possible onset of a Japanese version of the U.S. subprime loan crisis.
While the crisis has forced a large number of Americans to lose their homes, the officials warn that a similar consequence may be awaiting Japan.
Re-plus went down with liabilities totaling 32.5 billion yen. Although the sum is considerably smaller than the 255.8 billion yen left behind by Urban Corp. -- the biggest bankruptcy in Japan so far this year -- the rental home market is gravely concerned about the impact of Re-plus' failure due to its business model.
The presence of Re-plus has become noticeable recently in the market for property funds as the manager of Re-plus Residential Investment Inc., a real estate investment trust, or REIT.
Re-plus is thought to have the biggest market share in its core business of guaranteeing rents for homes. According to data released by the company, it had 600,000 guarantee contracts as of the end of June.
A rent guarantor pays rents for clients when they are unable to pay them. Demand for the service has grown sharply among people unable to find co-signers.
Re-plus receives warranty fees equivalent to half of monthly rents from clients in the first year and 10,000 yen a year in the following years.
As long as the payment ability of applicants for the service is accurately examined, the business goes smoothly. However, the screening of applications is "lax" at many guarantors, said an executive at a real estate agent.
Re-plus started running into financial difficulty around June, often failing to make payments to landlords on time. Although the company in August attributed the delay in payments to a computer system glitch, it failed to meet obligations at the end of the month.
On Sept. 24, Re-plus went under as a sharp increase in clients late on rents made it impossible for the firm to make payments to landlords.
A key question is why the delinquency of rents has increased so rapidly.
A large number of condominiums have been put on the market for rental homes because they had been on construction binges until last summer. A glut in the market for rental condos has allowed a large number of people to move in only with rent guarantee contracts requiring no security deposits, according to the president of a real estate fund.
The collapse of Re-plus shows that the market for real estate investment has grown sharply due in part to rent guarantors' lax screening of applications.
Another key question is what will happen to Re-plus' 600,000 clients. While they are unlikely to be forced out of their homes anytime soon due to legal protection, they will need to conclude new contracts with other rent guarantors or find co-signers.
As landlords have become reluctant to accept guarantees from guarantor service companies, they may well increasingly reject new lease contracts.
Because rent guarantee services are often used by people with low creditworthiness, Japan may witness its own version of the U.S. subprime mortgage crisis.
The failure of Re-plus casts a shadow over the future of Japan's residential market.
Translated from an article written by Nikkei staff writer Kazuhiro Kida
(The Nikkei Veritas September 28 edition)
While the crisis has forced a large number of Americans to lose their homes, the officials warn that a similar consequence may be awaiting Japan.
Re-plus went down with liabilities totaling 32.5 billion yen. Although the sum is considerably smaller than the 255.8 billion yen left behind by Urban Corp. -- the biggest bankruptcy in Japan so far this year -- the rental home market is gravely concerned about the impact of Re-plus' failure due to its business model.
The presence of Re-plus has become noticeable recently in the market for property funds as the manager of Re-plus Residential Investment Inc., a real estate investment trust, or REIT.
Re-plus is thought to have the biggest market share in its core business of guaranteeing rents for homes. According to data released by the company, it had 600,000 guarantee contracts as of the end of June.
A rent guarantor pays rents for clients when they are unable to pay them. Demand for the service has grown sharply among people unable to find co-signers.
Re-plus receives warranty fees equivalent to half of monthly rents from clients in the first year and 10,000 yen a year in the following years.
As long as the payment ability of applicants for the service is accurately examined, the business goes smoothly. However, the screening of applications is "lax" at many guarantors, said an executive at a real estate agent.
Re-plus started running into financial difficulty around June, often failing to make payments to landlords on time. Although the company in August attributed the delay in payments to a computer system glitch, it failed to meet obligations at the end of the month.
On Sept. 24, Re-plus went under as a sharp increase in clients late on rents made it impossible for the firm to make payments to landlords.
A key question is why the delinquency of rents has increased so rapidly.
A large number of condominiums have been put on the market for rental homes because they had been on construction binges until last summer. A glut in the market for rental condos has allowed a large number of people to move in only with rent guarantee contracts requiring no security deposits, according to the president of a real estate fund.
The collapse of Re-plus shows that the market for real estate investment has grown sharply due in part to rent guarantors' lax screening of applications.
Another key question is what will happen to Re-plus' 600,000 clients. While they are unlikely to be forced out of their homes anytime soon due to legal protection, they will need to conclude new contracts with other rent guarantors or find co-signers.
As landlords have become reluctant to accept guarantees from guarantor service companies, they may well increasingly reject new lease contracts.
Because rent guarantee services are often used by people with low creditworthiness, Japan may witness its own version of the U.S. subprime mortgage crisis.
The failure of Re-plus casts a shadow over the future of Japan's residential market.
Translated from an article written by Nikkei staff writer Kazuhiro Kida
(The Nikkei Veritas September 28 edition)
viernes, 3 de octubre de 2008
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