Aiming to increase liquidity in Japan's capital markets, Bankers Trust New York Corp. has begun arranging stock splits that let Japanese banks and corporations sell off cross-holdings.
"Around 40% of common stock in Japan is cross-held by banks and corporations," said Masayuki Yasuoka, managing director and senior country officer for Bankers Trust in Japan. "But until now, banks have been unable to sell any of it, because of the destabilizing effect it could have on the relationship."
Japan's key Nikkei stock market index has fallen from a high of around 39,000 in 1989 to around 16,000 in the wake of a collapse in real estate prices and a slowing economy.
The fall in stock prices has been of particular concern to Japanese banks, because it has eroded the value of shares they hold and use toward meeting the 8% capital-to-asset ratio that the Basel, Switzerland-based Bank for International Settlements decided on as a minimum several years ago.
Under a solution devised by Bankers Trust, cross-held stock is split
FIX into so-called voting stock with no dividend payment and "economic" stock, in which is a dividend is paid. The voting stock is retained by the original owner, while the economic portion of the stock is sold off to investors.
Bankers Trust has already arranged several such transactions but has not said which banks and other companies are involved.
Japanese banking sources noted that the high percentage of stock cross- held on the Tokyo exchange has been a major obstacle to improving returns on Japanese shares, raising share prices, and helping increase foreign investment in Japanese stocks.
"Cross shareholdings have to change," said Shizuo Kato, managing director in the market trading department at Towa Securities Co.
Bankers Trust posted $53 million in net profits in Japan last year, though total earnings are higher because much of the Japan-related business tends to be booked in other locations. The bank has around $4.5 billion of assets in Japan, where it operates through a banking branch, securities company, trust bank, and investment management firm.
Mr. Yasuoka said the arrangements to split cross-held stock are part of an effort by Bankers Trust to introduce new financial solutions in Japan.
In related moves aimed at helping Japanese banks improve capital and liquidity, Bankers Trust has been arranging the purchase and sale of distressed bank debt to develop a secondary market in Japan for such loans.
Japan's top 20 banks hold around $280 billion of nonperforming loans, only half of which have been written off. The final tally for problem loans at the top 20 banks could be at least double that if Japan's economy continues to deteriorate, Mr. Yasuoka said.