Chapter 534: Targeted Fat Meat
Of course, the first to suffer from the sharp drop in housing prices in Japan are the major real estate companies.
Because all their businesses are basically derived from land, they will also face the impact of the housing market crash.
What happened in Toranomon Building is almost a true portrayal of today's small and medium-sized real estate companies.
Come to think of it, the prices in many popular locations have been cut in half.
Such an outrageous price gap can directly cause many real estate companies to go bankrupt.
According to economic theory, if house prices fall by more than 10%, it can be called a house price crash.
If the drop exceeds 30%, it would be a capitulation of housing prices.
The surrender of housing prices is also called panic selling. Now Neon has taken one step at a time and is currently in this stage.
In just a few months, Neon has gone through the three cyclical stages of housing price adjustment, housing price collapse, and housing price capitulation.
Because the process happens so quickly, most people don't react in time.
This includes banks, real estate agencies, businesses, and ordinary individuals.
The remaining value of the land after the sharp drop in price is less than half of the previous bank loan.
There is no doubt that real estate institutions are facing the risk of bankruptcy and the entire market is in a state of panic.
The slightest disturbance can cause panic among people.
Faced with such a terrifying situation, some companies chose to surrender directly and started bankruptcy procedures.
Other companies are trying to save themselves by going to banks for loans and selling remaining land at low prices in the market in an effort to recover funds.
However, faced with the collapse of the real estate market, banks are unlikely to give them such an opportunity.
As long as the company is insolvent, the bank has the right to recover its loans in advance.
But it is obvious that real estate companies and enterprises at this time have no spare capacity to pay off their loans, so bankruptcy is likely to remain the outcome that awaits them.
Faced with the collapse of the property market, this is the choice of real estate companies, enterprises and other institutions.
What about ordinary people? They either have to pay off a loan that is worth more than their house for the rest of their lives, or they can just stop paying it.
But no matter which path you choose, it is not a good one for ordinary people.
Just look at the streets of Tokyo at this time and you will see that the number of homeless people has increased significantly.
They are all people who cannot pay their mortgages, or who have become homeless after divorce to avoid debt.
But this is just the beginning. It may take some time for the impact of the collapse of land prices to be passed on to ordinary people.
But there is no doubt that whether real estate companies fall into crisis or ordinary people default on their mortgages, their choices directly bring a large amount of bad debts to banks.
Because land has become worthless, banks are facing the dilemma of not being able to recover loans secured by land.
These loans that cannot be recovered become the bank's bad debts and non-performing assets.
At this point, don’t even mention any off-book gains, as they have all vanished into thin air.
Due to the emergence of large amounts of non-performing assets, problems continued to arise within the bank.
The previous financial scandal has not yet ended, and the real estate shock has followed. Now all the major banks in Japan are in danger.
According to a survey conducted by the Ministry of Finance on 21 banks in 1992, the accumulated bad debts of the banking industry due to a series of shocks reached 110 billion US dollars.
One third of this is related to real estate, and now is just the beginning of the land impact. House prices will continue to fall in the future...
Faced with the chaotic situation, I wonder what the bank heads who were supported by Kiichi Miyazawa and rejected it at the meeting half a year ago think?
Maybe they don't care, maybe they regret it, but at this point most banks no longer have the energy to do anything.
Faced with the increasing amount of bad debts, some small and medium-sized banks have taken the lead in starting to work together to keep warm.
Saitama and Kyowa Bank are just the first wave. Although they are small local banks, their merger is highly symbolic.
This means that the negative impact of the bubble burst has been transmitted to the banking side.
Due to their size, Saitama and Kyowa Bank could not bear the consequences of large-scale bad debts, so they started self-rescue in advance.
From the merger of the two, Shirakawa Feng could already infer that other banks must have encountered the same problem.
The reason why nothing seems unusual now is because they can still hold on for a while.
But it won’t be long, especially when Changyin starts selling EIE shares, which will be a landmark event.
EIE International started out in real estate and has a large number of real estate investments around the world.
Hotels, universities, resorts, golf courses, all of these are related to land.
Do you know how much a membership card for EIE International’s golf ?
300 million yen!
During the bubble period, people could speculate on anything, including stocks, land, and even golf course membership cards.
At that time, in order to highlight the difference between themselves and ordinary people, the rich people did not go to ordinary stadiums at all.
These top-notch golf courses developed by real estate developers are what they are pursuing, and it would be best if they were membership-based.
EIE International started selling membership cards even before the stadium was built.
Is it normal to start selling membership cards when the stadium isn’t even built yet?
What's abnormal? Aren't there pre-sale properties everywhere in China, and some even sell properties directly off the plan?
As a result, there are still a lot of people who pay for it. EIE International uses the same trick.
After being hyped up in the market, these membership cards became scarce and in high demand, and for a time became short-term financial products.
When American officials who came to Japan for inspection heard the sky-high price of 300 million yen, they thought it was the price of a golf course.
There were countless strange phenomena during the crazy period, and now the price of the EIE International golf membership card has dropped to hundreds of thousands of yen and no one is interested in it.
The reason for this huge difference is that EIE International’s golf course was left unfinished.
Before the real estate market collapsed last year, EIE International was already facing the risk of a broken capital chain.
The stock market collapse was the trigger, but stretching the company’s own battle line too long was the root cause.
Now that land prices have collapsed, EIE International is in danger.
Faced with such a situation, as its main bank, Changxin Bank should actively provide rescue.
However, at this time, Changyin itself was in a difficult situation and had no spare energy to save EIE International.
To put it bluntly, Changyin's abandonment of rescuing EIE International and selling off its 20% stake was a move to sacrifice the car to save the driver.
In 1997, Takahashi Oshinori of EIE first approached Long-Term Credit Bank to apply for a loan of US$350 million.
The headquarters of China Everbright Bank knew very well that the figures reported by EIE were too inflated and even lacked any project details.
But it still agreed to the other party's application and started lending.
This happened because EIE mentioned the purchase of a large amount of land when applying for the loan.
At that time, banks only considered one thing when lending to other institutions: whether the collateral was real estate!
In response to the questions raised by local branches, the headquarters of China Everbright Bank gave a very straightforward response: It is ridiculous to worry about cash flow or rate of return, as that is something only Americans can do.
So, with the tacit approval of the headquarters, EIE borrowed US$8 billion from Long-Term Credit Bank in just four years, totaling 1.1 trillion yen.
All of this money was used by EIE to frantically purchase real estate around the world. As the land appreciated, Long Silver's assets swelled to US$300 billion.
However, all efforts were in vain as land prices plummeted.
Not only is EIE International unable to repay its loans, but Changyin’s originally inflated assets have now become a drag.
Coupled with the double blow of the stock market, banks' cash flow has begun to show signs of drying up.
Even under such circumstances, the Ministry of Finance still prohibited banks from arbitrarily cutting off loans and forced large banks to rescue small financial institutions in trouble.
This model originated from the main banking system of the post-war economic recovery, which is the so-called "convoy" model in the banking industry.
It ensures that financial institutions and real enterprises will not go bankrupt, and banks will provide them with support in the event of a crisis.
The same model also applies to small banks and large banks.
In other words, the market law of survival of the fittest does not apply to Japan's banking industry.
Judging from modern market experience, this rigid model is undoubtedly backward.
But this is Japan, the power of conservatism is often beyond the imagination of outsiders.
However, under pressure from the Ministry of Finance, Long-Term Credit Bank's support for EIE, which lasted for nearly a year, has now had to give up.
The reason why Changyin Bank ignored the Ministry of Finance's order was that it found that EIE was simply a bottomless pit.
Due to its large scale, many of EIE's real estate developments around the world are still in the construction stage.
If the capital chain is broken, there is a risk of suspension of work and unfinished project. If you want to complete the project as soon as possible and cash out, you need continuous capital investment.
After taking the lead in EIE, Changyin also tried to invest a certain amount of funds.
But the current real estate market in Japan is destined to make all previous investments go to waste.
So after some discussion within China Everbright Bank, it decisively announced that it would give up its controlling stake in EIE.
The bad debts generated within EIE Long-Term Credit Bank alone amounted to 1.5 trillion yen, and the bad debts generated in other areas were around 2.8 trillion yen.
In other words, at this time, Chang Hwa Bank's bad debts had reached 4 trillion yen, a figure that even dragged Chang Hwa Bank itself into an irretrievable situation.
Of course, as a top-notch bank in Japan, Changyin is still covering up its problems and its bad debts have not been exposed.
But others don’t know about Changyin’s situation, but Shirakawa Kaede and Arai Yu know.
Why did he deliberately detonate the real estate bubble in Japan in advance? Wasn't it just for this day when the sea was turbulent? Otherwise, who would do such a thankless task?
Since 1986, Shirakawa Kaede has ordered Arai Yu to secretly collect intelligence from major banks.
Since most of them are listed banks, their investment in the real estate industry can be roughly estimated from their annual financial reports.
Combined with the market conditions in recent years and information from major real estate companies, these estimated figures are basically accurate.
The actual loss of Long-Term Credit Bank was 4 trillion yen, but Shirakawa and his team came to the conclusion of around 3.6 trillion yen.
But whether it is 3.6 trillion or 4 trillion, there is no doubt that this figure is beyond the range that Changyin itself can bear.
Because according to the intelligence collected over the years, the loan business of China Everbright Bank itself is only worth 11 trillion yuan.
The bad debts that have been identified amount to 4 trillion yuan, accounting for about one-third of the total business, not to mention other non-performing debts.
If nothing unexpected happens, with such a high bad debt rate, the final outcome of Changyin will not be very good.
And now Baichuan Feng plans to continue to speed up this process. As long as Changyin survives, how can Kitato Bank complete the upgrade?
