Mita Collapse Signals Depth of Japan Crisis
When Osaka Securities Finance Co., a consumer finance company, recently went looking for a photocopier/fax machine, it gave its business to Konica, which had a sales force that was persistent, attentive and willing to discount.
“We didn’t even consider Mita,” the company’s office manager said. “The salespeople from Mita haven’t been around lately.”
Such lapses may partly explain why Mita Industrial Co. declared bankruptcy this week, becoming the first global household brand to go under in Japan since the start of this nation’s prolonged recession.
And it won’t be the last, analysts say, as Japan is dragged kicking and screaming to consolidate its bloated industries and untangle a web of bad loans.
Mita’s collapse also underscores the depth of Japan’s financial cover-up, how deeply disturbed Japan remains at the prospect of lost jobs and how hard the country seems to work at keeping its head in the sand.
Finally the case suggests ways Japan is beginning to refine its slow, tortuous bankruptcy system, which has been used rather selectively in the postwar period but is now receiving more attention.
Mita filed for court-backed reorganization under the bankruptcy law Monday, listing liabilities of about $1.4 billion and about 1,800 employees. The company could be acquired by ceramics maker Kyocera Corp., which said it will inject capital and help in restructuring, according to Mita’s president, Yoshihiro Mita. Moody’s promptly announced it would consider a Kyocera ratings downgrade.
Japan’s prolonged recession has led to record bankruptcies among small and medium-sized companies. Teikoku Databank reported 10,000 bankruptcies nationwide in the first half of 1998 with total liabilities of $49.2 billion, a post-war record.
But Mita’s fall--the largest-ever bankruptcy case in monetary terms for any manufacturer here in postwar history--suggests the waves are now lapping ever closer to the beaches of Japan Inc.
“From here on, this kind of bankruptcy could become increasingly common in every field, with only big winners surviving,” said Takamitsu Sawa, economics professor at Kyoto University.
The bankruptcy is seen as welcome news if Japan ever expects to begin the painful but necessary restructuring required for a turnaround.
“It’s always a good long-term sign when companies go bankrupt,” said Louis Ross, strategist with Merrill Lynch Japan. “Japan is still the biggest restructuring story in the world.”
That said, Japan remains almost morbidly afraid of its rising unemployment levels--officially pegged at just 4.3%--which may help explain the nation’s political paralysis over decisive bank restructuring and its past willingness to stave off larger bankruptcies at almost any cost.
“Politicians still seem willing to defend every last job,” said Chris Calderwood, an economist with Jardine Fleming. “But the grim reaper has been warming up.”
The fact that Japan would even allow a Mita-scale bankruptcy suggests what dire shape the country is in and how the traditional remedies are failing. In the past, a company’s banks would be called in to prop up a troubled borrower in a favored industry such as electronics. But this system is itself crumbling as banks increasingly face their own mortality.
The Mita case also suggests that even more financial problems may be buried just below the surface, and not just in Japan’s beleaguered banking or real estate sectors, which have received most of the attention.
Granted, a privately held company such as Mita has more leeway to hide financial problems. But it now appears that the $20-million profit Mita announced last fall was a fabrication, said Teikoku analyst Yoshihiro Matsumoto, and that Mita may have been cooking the books for years.
Mita’s bankruptcy promptly hammered shares of Sakura Bank, Mita’s primary financial institution, which saw its shares fall 2.9% Monday to a 17-year low as markets absorbed the fact that Sakura’s 7% bad loan ratio might now be understated.
Cases such as Mita’s are forcing Japan to strengthen its legal mechanisms for handling insolvent companies. While Japanese bankruptcy law is loosely based on the U.S. system, in practice the two nations’ approaches are quite different.
Because Japan has relied on banks to prop companies up, it has not used court-supervised reorganizations all that often, said Masakazu Iwakura, a principal at the law firm Nishimura & Partners.
Last year, however, Japan’s bankruptcy law was revised to give companies greater flexibility to merge or acquire one another, according to a Justice Ministry official. And further administrative reforms have been announced. Now, for example, shareholders from only one company, rather than both, need to approve a bankruptcy-driven merger for it to happen.
Still unclear are how bad Mita’s books really are and what Kyocera hopes to accomplish by absorbing Mita, said Takatoshi Yamamoto, an analyst with Morgan Stanley. While Kyocera has a printing business, Mita’s dated technology seems to offer few benefits.
Mita’s recent history, meanwhile, is a tale of missed opportunities. The company was founded in 1948 by Osaka’s Mita family and over the next four decades expanded to become a major manufacturer of copiers with 27 foreign and 22 domestic subsidiaries and 1,800 employees.
But early in the 1990s, it started making mistakes: relocating factories in expensive Hong Kong, letting management become bloated and backsliding on technology. At the same time, Fuji-Xerox, Ricoh and Konica stepped up their presence. Among other things, Mita failed to embrace digital technologies.
“What were they doing, looking out the window in the R&D; department?” asked one attorney.
Mita’s final paper jam was the Japanese recession, which sharply reduced demand for office machinery as Japanese companies made do with their old copiers or upgraded to more productive technologies.
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Etsuko Kawase in The Times’ Tokyo bureau contributed to this report.
