It finally happened. After four years on life support, the plug was pulled on Sanyo Securities, one of Japan's largest brokerages. The drama that preceded its demise was in many ways a microcosm of the problems facing Japan's financial system as a whole.
During the peak of the bubble, Sanyo was aiming for the sky. It built the largest trading room in Japan, equipped with expensive computers and attached to a cavernous entrance lobby filled with expensive art and sculpture. Sanyo had also extended itself to the very limit on real estate loans through a subsidiary.
By 1993, when the bubble had started to burst, Sanyo should have gone bankrupt. Instead, the Ministry of Finance, in a pattern that would be repeated time and again, went around twisting arms and forced eight life insurance companies and three banks to provide subordinated loans needed to keep Sanyo afloat.
In other words, the ministry's attitude at the time was to put a lid on the scary problem of the bubble and hope the whole thing would go away. Instead, the problem just grew bigger as companies like Sanyo, Hokkaido Takushoku Bank and several large life insurance companies, to name but a few, were given the green light to issue fraudulent accounts in the name of preserving national financial stability.
Despite vigorous efforts to restructure itself, Sanyo's bad debt was of a scale beyond redemption, especially given the poor state of the Japanese stock market for the past four years.
Thus it was that Sanyo was forced to make the rounds with its begging bowl several times, asking for three extensions on its subordinated loans in the past two years. Each time the life insurance companies reluctantly agreed, as did its three main banks: Daiwa, Nippon Credit Bank and Tokyo-Mitsubishi.
However, Sanyo was refused a further extension in October by the life insurance companies for the simple reason they could no longer afford it. The Finance Ministry, meanwhile, despite loudly promoting its Big Bang financial reforms, also tried hard behind the scenes to stick to its old 'financial convoy' system of forcing stronger financial institutions to support weaker ones like Sanyo.