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OPINION

Japanese banking: Chickens or wise men?

Have the big Japanese banks been over-cautious about buying stakes in troubled western peers?

He was laughing when he said it, and the audience laughed too, but there was a hint of steel behind senator Kotaro Tamura’s accusation that the Japanese banks have been shown to be chickens, rather than wise men, by recent events. There are many financial institutions worldwide that would admit that their good health owes more to fortune or innate caution than any inkling of a premonition of the present predicament, yet Tamura singled out the Japanese megabanks as being particularly over-cautious and lucky. It is too early to say for certain how wise the investments each of the three megabanks made are. Unfortunately for senator Tamura, though, the evidence thus far suggests that caution has again won the day.

Mizuho Financial Group was the first to invest in a distressed foreign bank, and when it bought $1.2 billion of Merrill Lynch convertible preference shares in January through its subsidiary corporate bank the Japanese firm was clear that the investment was for financial purposes only. Judged on those terms, the results have been uncertain at best: Merrill Lynch shares traded at about $50 at the time of purchase but by the time the banks agreed a new conversion price of $33 in August, the stock had been in free fall, dropping as low as $25 in July.