Quotes of the Day
You might expect that Heizo Takenaka—the head of Japan's Financial Services Agency (FSA) and thus the man in charge of fixing the country's banking crisis—would look embattled. But here in his spacious office in Tokyo's Kasumagaseki district, Takenaka looks relaxed, confident, even serene. Indeed, he professes little concern that the banking reforms he has attempted to enact over the past year have made him the government official that Japan's old-guard politicians most love to hate. "I had expected differing opinions," he tells Time, "but I think most Japanese citizens think we're headed in the right direction. Vested interest groups have a lot to say against the speed of reform, but in a democratic society, this is a matter of course."
When Prime Minister Junichiro Koizumi appointed him last October, Takenaka espoused all sorts of radical (for Japan) ideas about how to right a banking industry swamped with at least $358 billion in bad loans. He spoke of odd concepts like conservative accounting policies, responsible corporate governance and the importance of considering potential profits and credit risks instead of personal connections when making loans. He drew up a bold reform outline aimed at boosting banks' capital bases, cutting down on bookkeeping shenanigans and making executives more accountable.
Since then, however, Takenaka has shown remarkable tenacity, and more political acuity than anyone initially gave him credit for. He toned down his confrontational stance, and opted not to shoot immediately for a sweeping new order. Instead, he quietly pushed through a series of significant reforms last winter aimed at forcing banks to assess the quality of their capital more stringently and to accelerate their bad debt write-offs. None of this has made him Mr. Popular in the halls of the Diet, but his go-slow approach has ensured his survival, and he remains the nation's best hope for cleaning up a mess that nobody else has shown the will or economic smarts to untangle.
In May, he helped orchestrate a critical $17.2 billion bailout of Resona Bank, the nation's fifth largest bank, after its auditors said its asset base had fallen far below regulatory requirements. Rather than just hand the bank more cash, however, Takenaka ensured that a new set of managers and directors came on board. "We expect his Resona model will become a new model for corporate governance for the Japanese financial world," he says. Still, Masaaki Kanno, chief economist at JP Morgan in Tokyo, says this is only the beginning: "Yes, they installed new management, but they haven't shown that they've developed a new business model that will restore them to profitability."
True. But Takenaka's recent successes have given him crucial momentum. Now he aims, among other things, to bring down the banks' level of nonperforming loans from 8% a year ago to 4% in two years, noting that it has already fallen almost a full percentage point in six months. "We and the Prime Minister have very strongly resolved to bring the nonperforming loan issue to a conclusion in two years," he says. His next move? On Friday, Takenaka issued orders to 15 banks that have received capital injections in the past to return to profitability or face further government intervention. Two days before, four major banks sent preemptive letters of complaint to the government, claiming they are already doing all they can—but Takenaka has little sympathy. "Asset management is a bank's main operation," he says impatiently. It's hardly unreasonable, he says, for banks to be "evaluated based on carrying that out."
Despite such tough talk, there's some doubt whether he'll be around long enough to see his plans come to fruition. Koizumi faces Liberal Democratic Party presidential elections in September, and he has said he'll reshuffle the cabinet to "bolster party unity" if reelected. Some believe Koizumi will sacrifice Takenaka to appease party traditionalists and guarantee his reelection, while others say Koizumi is pinning his still hoped-for legacy as a reformer on Takenaka's success. Takenaka refuses to speculate on whether he'll survive a reshuffle, but says that he believes Koizumi is committed to structural reform—and that he's committed to Koizumi. "Under the Prime Minister, I, as well as the rest of the FSA, am blessed with a positive environment that facilitates our work," he says. "Japan is now in the third year under the Koizumi reform, and I think results are beginning to bud." In a land too often paralyzed by political inaction, Takenaka, for one, has the courage of his convictions.
- Jim Frederick | Tokyo
- Heizo Takenaka is determined to rid Japan's financial house of disorder