Summary
With credit default swaps (CDS) for Aiful and Takefuji trading at historic highs, Japan's newly appointed Financial Services Minister shows little sympathy for lenders in proposing a 3-year moratorium on repayment of small business loans.
Analysis
Consumer finance stocks dropped sharply in first mid-July when the Democratic Party of Japan registered strong gains in the Tokyo Metropolitan Assembly election and then again in late August when it polls indicated a similar outcome in the national general election.
At the time, there was little indication of the party's intentions other than comments made during past diet deliberations. In 55 pages, the party's manifesto failed to mention banks, consumer finance or interest rates even once.
Appointment of veteran lawmaker Hon. Shizuka Kamei as State Minister for Postal Services and Financial Affairs, however, confirms the worst fears of foreign investors who must now brace themselves for a wild ride unlike any seen to date.
Hon. Kamei hails from the People's New Party, the smallest party in the new ruling coalition formed entirely by former members of the long-time former ruling party who were expelled or resigned for opposing former Prime Minister Junichiro Koizumi's postal privatization inititiative.
Foreign financial services companies such as AIG had embraced privatization as one means of providing a "level playing field" for the financial industry by forcing the postal savings and insurance schemes to reflect the cost of core expenses such as rent, salaries and taxes in their product yields.
Not only is Hon. Kamei a staunch opponent of privatization, he also is the first politician to oversee the lending, insurance and securities industries in addition to postal services, which encompass Japan Post Bank and Japan Post Insurance, the country's largest deposit taking institution and life insurance scheme, respectively.
Institutional investors who thought financial regulation could not get any worse in Japan had better re-examine their portfolios.
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
