Though Japan's financial services industry is in the grip of an economic crisis, U.S. banks doing business with troubled Japanese firms need not worry, according to bankers and analysts.
U.S. banks, they say, face only limited risks because of the strong probability that the Japanese government will back up the debts of a failed Japanese bank or brokerage.
"The systemic consequences of major Japanese banks not honoring their debts would be comparable to major U.S. banks not honoring their debts in the early '90s," said Raphael Soifer, a banking analyst with Brown Brothers Harriman. 'It's just not likely to happen."
Said one senior international executive at a U.S. bank, "I seriously doubt this will have any negative impact on American banks. We're talking about a country that has incredible resources to deal with its problems."
Concerns about U.S. bank exposure to Japan have mounted following last month's failure of a major Japanese bank and two major securities firms.
Japanese banks have been badly hit by mounting problem real estate loans as well as a lot of lending to Southeast Asian countries with troubled economies. Both bankers and analysts predicted that more institutions crippled by increasing bad loans would fail. But they also predict that the Japanese government will not allow any major banks to go under.
Most of the exposure to Japan is concentrated among six money-center banks, including Citicorp, Chase Manhattan Corp., BankAmerica Corp., J.P. Morgan & Co. Inc., Bankers Trust New York Corp., and First Chicago NBD Corp.
By Sept. 30, U.S. banks were owed a combined $67.3 billion by Japanese borrowers and counterparties, according to the Federal Financial Institutions Examination Council, an agency that tracks U.S. banks' international liabilities. That includes nearly $12 billion in gains on foreign exchange and derivatives contracts, $4.5 billion in local currency claims, and an estimated $5 billion in short-term, trade-finance-related loans. Much of the increase in exposure to Japan in recent years has come from foreign exchange and derivatives-related contracts.
Both bankers and analysts predicted the current crisis, which has triggered a sharp fall in bank share prices in Japan in recent weeks, would help accelerate a long overdue restructuring of both Japan's financial system and individual Japanese banks.