Events related to the Crash

• Mizuho Financial Group has announced plans (to be formalized later today) to forgive ¥100 billion in loans to failed retailer Sogo Co. This is thought to pave the way for Sogo's rehabilitation. The breakdown is: Industrial Bank of Japan ¥90 billion, Dai-Ichi Kangyo Bank ¥5 billion, and the remainder (¥5 billion) by Fuji Bank.

• Japan's post-WWII bankruptcy debt hit a record high for 2000: ¥23.99 trillion. This exceeded the previous high, in 1998, of ¥14.38 trillion. The total number of bankruptcies in 2000 was 19,071; for 1999, this was 15,460.

• Red China has completed its planning of a cleanup in state trust firms, and is implementing reforms. Red China has formalized a de-facto ban (by foreign banks) on raising debt abroad. Taking deposits and issuing bonds are also banned; the former seems to be a reiteration of something that has always been technically true (perhaps the interpretation will be more functionally oriented?). The ultimate target number of trust firms is said to be about 40; the current number is around 239. It is unclear whether this number includes Dongfang Trust and Investment Co. (owned by the Bank of China), which was closed today.

• The Bank of Japan expects the massive reduction in liquidty for Japan's bond market (induced by the BoJ's launch of its Real-Time Gross Settlement system on Jan. 4, 2001 without preserving the old system) will soon correct itself without formal intervention. Cf Dec. 26, 2000.

• Daewoo Motor's union managed to stage a 6,500-worker walkout at Bupyong, starting at noon today. However, this only shut operations for one hour.

• Russia was projected to default on an initial payment of U.S.$1.6 billion today on U.S.$6 billion in Soviet-era debt. The payment is supposed to be made to the Japan Bank for International Cooperation.
• Daewoo Motor's creditors announced plans to complete the initially announced reduction in blue collar workers by eliminating 2,794 workers [approximately 22% of the current workforce]. The affected union immediately planned to strike, with about 65% [about 6,100] of the 9,400 workers present (out of about 12,700) voting in favor.

• The Japanese yen has fallen to its lowest levels in one and a half years [¥118.35/U.S.$1], with at least one speculative target (near time) being over ¥140/U.S.$1. Since corporate assets will have to be "marked to market" on Mar. 31, 2001, there are projections that this will seriously damage balance sheets. This is likely to cause a sell-off in the Nikkei -- and if the Nikkei falls below 12,000, Japanese banks will be in increasing danger of being rendered insolvent by their stock positions. The Euro is doing fairly well, hovering near 1 Euro/U.S.$0.95.
• Salomon Smith Barney reported that a number of large U.S. banks have an (absolutely) large exposure to loans that plausibly could default this year [2001]. The top ten banks (by exposure) were:
  1. Bank of America [2nd largest bank in U.S.]
  2. Bank One [4th largest bank in U.S.]
  3. J.P. Morgan and Chase [5th largest bank in U.S.]
  4. First Union [6th largest bank in U.S.]
  5. FleetBoston Financial [9th largest bank in U.S.]
  6. Bank of New York
  7. KeyCorp
  8. Wachovia
  9. USBancorp
  10. Comerica
  The largest high-risk loans included:
  1. U.S.$7 billion, Wachovia to Xerox
  2. U.S.$6 billion, Bank of America to J.C. Penney
  3. U.S.$4.7 billion, Bank of America to Finova Group Inc.
  4. U.S.$4.5 billion, Bank of America to Owens Illinois Inc.
  5. U.S.$2.1 billion, First Union to Federal Mogul Corp.

• The IMF has formally approved a new aid package (approximately U.S.$40 billion total, U.S.$14 billion direct IMF funds) for Argentina. This package is spread out over three years [2001 through 2003]. There will be some internal political resistance to IMF-required reforms; in particular, pension reforms currently in effect have threats (of unknown substance) from left-leaning politicans of being revoked.

• Argentina's Economic Ministry has delegated to the U.S. investment banks Goldman Sachs, and Salomon Smith Barney, a U.S.$3 billion debt swap, initially mandated by an IMF deal. Current speculation is that 1..4-year Bontes are to be swapped for 7-year and 11-year Bontes, in an effort to minimize amortizations in Argentina's debt over the next two years [2001 and 2002].

• Red China's Tianjin International Trust and Investment Corp (TITIC), while it made its Samurai bond payments within the grace period, still has large past-due debt exposure with four Japanese banks [Sakura Bank, Industrial Bank of Japan, Sumitomo Bank, and Asahi Bank: these are on file with Japan's Ministry of Finance]. Since at least one high official of TITIC has openly stated that "To my knowledge, we have no outstanding loans from Japanese banks.", collecting on these loans will be problematic.

• South Korea's Financial Supervisory Commission was forced to declare a report in the Korea Economic Daily false: that U.S. investment fund Carlyle, which has a 40% investment stake in KorAm Bank, had notified the Financial Supervisory Commission that it would not proceed with talks to merge KorAm Bank with Hana Bank. Both Hana and KorAm Bank also considered the report false...although little progress had been made, and no further talks were immediately scheduled.

• The Bank of (South) Korea has announced its intention to completely repay the IMF loans [U.S.$5.8 billion] involved in its bailout by August 2001. This target does not include loans to either the World Bank or the Asian Development Bank [combined, U.S.$10.7 billion]. A U.S.$500 million payment towards clearing the IMF debt is scheduled for Jan. 8, 2000.