Yakuza settle bad debts with a bullet as Japan bubble bursts

JAPANESE businessmen are still trying to forget about Kazufumi Hatanaka. Early one morning in September 1994, the 54-year old manager of the Nagoya city branch of Sumitomo Bank was woken by an unidentified caller at his luxury apartment block. Police assume that he knew his visitor, because he operated the remote-controlled entryway of the building, and opened his door as the lift arrived. A few minutes later, a neighbour found the dying banker, still in his pyjamas, slumped against the wall. He had been shot through the face with a .38 calibre revolver.

There is an expression in Japanese, very much in vogue at the moment, for the circumstances which led to the banker's death. In bureaucratic language, it was a "problem of borrower responsibility". It was connected with Mr Hatanaka's work on what are called "difficult to recover debts". Put less euphemistically, he was assassinated on the orders of gangsters who were under pressure from him to repay loans to Sumitomo Bank - vast loans, made during the boom days of the "bubble economy", and secured on property which has now dwindled to a fraction of its original value.

Negative equity, the bane of British mortgage holders, has hit home in an unlikely place: among the yakuza, Japan's criminal syndicates. Long a shadowy presence in Japanese politics and business, the yakuza and their associates in small ultra-nationalist groups have become remarkably visible in recent weeks - quoted in the newspapers and magazines and noisily at large on the streets of Tokyo, blaring anti-government slogans through black sound trucks emblazoned with the Rising Sun flag. "It's a scary, scary business," said one, insistently anonymous, financial analyst. "These people do not mess around: they kill people."

Behind the euphemisms, the story of the yakuza and the banks is a morality tale about Japan's bubble economy, which took off in the mid-1980s and came to an abrupt end in 1992. Intoxicated by surging asset prices, Japanese banks raced to lend money on the back of apparently unquenchable property values. But when the bottom fell out of the property market, debtors found themselves unable to meet repayments.

After a hesitant start, the banks began to foreclose on what were called "problem loans". But it soon became clear that they had not only been rash in the scale of their lending, but foolish in their choice of customers.

Over the years, property developers had developed close links with the yakuza whom they employed as "land turners" - hired thugs who would intimidate and drive out tenants from property marked for redevelopment. The yakuza syndicates - highly organised, with large incomes derived from drug-dealing and prostitution, as well as legitimate businesses like amusement arcades - began to yearn for a slice of this action themselves. Through front companies, they negotiated immense loans.

The Ministry of Finance's official estimate puts total bad loans at around 40 trillion yen (pounds 246bn), though some analysts suggest the true figure could be more than twice that size. And. according to Raisuke Miyawaki, a former policeman and bureaucrat, who lectures and advises companies on the yakuza problem, the loans extended to the gangs could be as great as 10 per cent of the total.

The yakuza have an advantage over other debtors: everyone is terrified of them. Apart from terrorising or murdering those who pressured them, years of "land-turning" rendered them expert on every legal dodge. "They show great creativity," says Mr Miyawaki. "They became specialists on bad debt, more sophisticated than the lawyers who were hired against them."

The big banks, like Sumitomo, were able to absorb their losses, but not all the bubble lenders have turned out to be so robust. Symbolic of the whole sorry mess are the jusen - seven housing loan corporations, which were founded in the early 1970s to provide mortgages to individual property buyers, a role which the banks were then forbidden from taking on. When the rules were changed to let the banks in, the jusen were forced to look for new customers - and found an alarmingly high proportion of them among the gangs. Lacking the big banks' assets the jusen have more or less been bankrupted by the bursting of the bubble, and the last few months have seen a shrill feud between the banks and the government over who is responsible for bailing them out.

The government unveiled its final proposals last week, splitting the bill between the public and private sectors. The final cost of the bail- out is likely to suck in at least 1.2 trillion yen from the public purse. Much of the property owned by the yakuza will never be seriously pursued, and the taxpayers of Japan will find themselves in effect subsidising pimps, drug-dealers and murderers.