20 Years On: Yamaichi failure sparked makeover for securities industry

November 25, 2017

Tokyo- The failure of Yamaichi Securities Co., one of Japan's formidable Big Four brokerage houses, in November 1997 marked the start of turbulence that compelled significant changes in the securities industry.

The industry has witnessed the growth of online brokerage houses, induced by deregulation, as well as the realignment of traditional brick-and-mortar stockbrokers into five major players.

In the meantime, individual investors have not lost their distrust in the industry, which favored large business customers at the expense of retail investors. Calls for a shift from savings to investment have largely fallen on deaf ears.

Weighed down by heavy debt, Yamaichi filed for voluntary closure on Nov. 24, 1997, a week after major commercial bank Hokkaido Takushoku Bank went under, saddled with massive bad loans. The financial crisis sparked by their failures highlighted the limitations of the "convoy system" of financial supervision orchestrated by the former Finance Ministry and shattered the myth that major financial institutions would never go bankrupt.

Yamaichi had no choice but to shut down voluntarily, rather than seeking court-led business reconstruction such as under the corporate rehabilitation law, chiefly due to accounting irregularities known as "tobashi."

Yamaichi, which was strong in business with corporations, guaranteed investment returns to a select group of favored customers and reimbursed them for losses caused by plunging stock prices after the collapse of the bubble economy. In tobashi, the company concealed latent off-the-book liabilities totaling more than 260 billion yen by transferring them to shell companies overseas.

"At the time, we were classed in the Big Four league and had respectable offices matching the rank," recalled Shigeru Ishii, who, as head of Yamaichi's corporate planning office, submitted an application for an operational shutdown to the ministry. Jiji Press