Popular
business books usually come in one of two forms. On the one hand,
the author follows a particular figure resulting in a genre that
is often one part hagiography and one part “how to” book—a healthy
dose of prurient gossip is thrown in for good measure. Success
or failure is determined by a great man’s (and the occasional
woman’s) singular vision and decisions. David McGee’s Turnaround,
i.e., ”Le Cost Killer” Carlos Ghosn Story, or Lee Iaccoa’s eponymous
autobiography epitomizes the genre.
On the other
hand, corporate decision making and strategy have little significance—companies
and businesses are acted upon by the culture and environment around
them. Culture is the cause of both success and failure.
The Japanology industry is rife with these types of books.
For example, in the bubble era, numerous books pointed to consensus
decision-making and “nemawashi,” or consensus-building, as a source
of Japan’s business prowess. With Japanese companies’ penchant
for group calisthenics and the rise of Sony, suddenly the Japanese
were an army of super workers about to take over the world.
The genre likes to have it both ways: since the implosion of the
bubble, other authors ascribe the same love of consensus as the
very reason behind Japanese economic and political stagnation.
At
best, these types of books are compelling; perhaps because their
message is so streamlined and fed to the reader in bite sized
elementary prose. At worst, they are unreadable stereotypes.
In the end, both are not much use for the reader trying to understand
the whole picture, let alone a business.
Enter Gillian Tett’s Saving the Sun, a book about the epic
fall of Japan’s Long Term Credit Bank (LTCB), U.S. private equity
fund Ripplewood’s purchase, and its revival as Shinsei Bank. It
balances description of the problems and misunderstandings that
stem from conflicting cultures and the very real decisions made
by all-too-human actors. While her book is not an insider’s account
of LTCB, it is well-researched and documented, and attempts to
portray the background and reasoning behind both some very good
and very bad business decisions. Clearly, Tett’s training
as a social anthropologist at Cambridge University and tenure
as a Tokyo bureau chief at the Financial Times served her
in good stead in picking through the complex network of relationships
and motivations of the players in LTCB’s history. As Tett
herself writes, “I decided to try to write that explored the 'people'
side of the Japan’s banking tale. . .” Dr. Tett achieves
exactly what she sets out to do.
LTCB had been a key pillar in Japan’s economic system. In
1952, Nippon Kangyo split into a city bank, Daichi Kangyo, and
LTCB. As LTCB, the bank channeled money to companies which were
of “national importance,” namely heavy industry and manufacturing.
Because the government set interest rates, more often than not,
high-risk companies paid the similar interest rates as low risk
companies. At LTCB, the culture was one that regard money
as “a means to an end, not an end itself—and the end was the revival
of Japan.” Major banks in Japan were not so much institutions
for profit but government organizations for creating a greater
Japan.
However, with liberalization in the 1970s, the bond markets began
to supplant the LTCB’s role. In reaction to changing environment,
LTCB began to lend money recklessly to real estate speculators.
With the implosion of the bubble, the loans were no longer viable,
and the bank collapsed under the load of its NPLs (non performing
loans). In 1998, the bank was nationalized with some 50
billion dollars in bad loans. In March 2000, the “cowboys” in
the form of Tim Collins and his Ripplewood team rode into town,
and the “samurai bankers” of LTCB were sold, later to be renamed
Shinsei Bank. Collins, for his part, believed with an almost messianic
zeal, in the healing power of capitalism: “For me, our returns
are the yardstick for how well we created value. . .but also I
want to make the world a better place.”
Tett’s book is divided into three parts: LTCB’s downfall under
its last president, Katsunobu Onogi, Ripplewood’s acquisition
of LTCB and under Collins, and its restructuring as Shinsei Bank
under Masamoto Yashiro. While numerous books on Japan’s
banking woes exist, perhaps what is most admirable about Tett’s
book is does what it clearly sets out to do: it seeks to tell
the story of Japan’s banking problems from a “bottom up” perspective—most
books on the Japanese banking crisis are from a macro perspective,
not an anthropological one. It does not try to present a ”comprehensive
prescription for how to fix Japan’s economic problems”—it follows
the experience of one bank, one that epitomized Japanese banking
problems, and how the problems were worked out with a combination
of skill and luck. While this book would never replace a
perusal of Shisei’s prospectus, it situates the numbers in a useful
context. Suffice it to say, Tett’s book is far more entertaining
than Shinsei’s accounts.
Tett does not create villains or heroes, and she stops short of
condemnation. To those following the banking crisis, LTCB management’s
decision to hide the bad loans may have seemed baffling, even
cowardly. She explains why a group of seemingly rational, well-educated,
urbane Japanese bankers would illegally “cook the books” and hide
billions of dollars of LTCB’s bad loans. Their behavior was baffling
to even their own countrymen. One Japanese economics professor
raged “Some times I feel so angry with the [LTCB] bankers I would
like to explode! How could these stupid men have done this to
our country! How could they be so weak?”
Tett depicts Onogi, oft lumped with the vilified “bubble shinshi”
(bubble gentleman) by the media, as a product of a post war culture
dedicated to serving Japan. “We felt so excited about what
we had achieved!. . .We all felt very proud,” he says of LTCB
in the 1970s. Later, when he minimized the extent of the bad loans,
he seems to honestly believe he was serving the best interests
of Japan and had a degree of government sanction. Like the plot
of a Thomas Hardy novel, bad things happen to this well-intentioned
but flawed man. As the ensuing scandal unfolded, another
LTCB executive would fume, “This isn’t justice—it is a witch hunt!.
. .What the LTCB management did was very bad management, but it
wasn’t criminal!”
To
some Japanese, Ripplwood’s behavior may have appeared rapacious.
Ripplewood caused furor and consternation in the media and in
the Diet when it allowed the retailer Sogo to fail in 2000.
It forced the government to honor its “put” option on bad loans—that
is, the right to “hand back” bad loans to the government, effectively
wiping it off Shinsei books at taxpayer expense. The FSA
had expected Ripplewood to honor the spirit of the agreement:
Ripplewood forced the government to honor the legality of their
contract. The government had regarded Ripplewood adequately
compensated for the risks it assumed and accused the bank of acting
“selfishly”. Nor did the FSA want to admit that the put
option was a gambit to delay disclosure of the real size of the
bad loans. A real danger existed that the Japanese
government might renege on its promise. Yashiro was dragged in
front of the Diet and forced justify his actions.
The book ends with Onogi’s guilty verdict and Shisei’s management
ruminating on their experience at the bank—the IPO is in the works,
but is unclear. As it happened, Ripplewood’s offering of one third
of its stake on February 19th was one this quarter’s
most anticipated financial events. The bank stock did not
disappoint, opening at 872 yen, well above its public offering
price of 525 yen. The press hyped its much improved balance sheet,
management team, star-studded advisory board (which included former
Federal Reserve head Paul Volker) and its new retail banking division.
The offering was in a many ways the fairy tale ending—the ugly
duckling turns into a swan, and every one lives happily every
after.
Or
will they? Four months later, the share price has been drifting
down towards the 600 yen level (Click here
for "Shinsei Bank: Share Price History"). More
questions remain: what will happen once Yashiro retires?
Therriey Porte, formally of Morgan Stanley Japan, is widely seen
as Yashiro’s successor but has little experience in retail banking.
And with such tough lending standards, will the bank find borrowers?
Will Shinsei Bank revert to its old LTCB ways? Can this
mix of Japanese and American business cultures survive?
Clearly Shinsei Bank is a work in progress; only time will tell
if this grand experiment was a success. 
