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The big squeeze

Homeowners targeted as Japan's banks turn nasty to balance books

by David Mcneill and Angela Jeffs

The news from Japan these days is untypically sunny. The economy is performing at its sharpest clip for 13 years, investment and profits are up and analysts are gingerly forecasting a sustained recovery.

And like a giant exclamation mark to the optimistic predictions, along come three of Japan’s four giant banking groups to declare that they returned to the black in fiscal 2003, perhaps signaling the beginning of the end of Japan’s bad-debt nightmare.

But beneath the sunny economic landscape are thousands of tales of misery thanks to the ruthless pruning of payrolls and bank balance sheets that it took to to put Japan Inc. staggering back on its feet.

Take the story of American Carol Miyazaki and her Japanese husband, Jorge.

Earlier this year, Mrs Miyazaki opened the door of her apartment in Kichijoji to find eight men in business suits crowding the lobby. “I went straight back inside and rang my husband who told me to stay put, say nothing and not let them in. That’s when I began shaking.”

The men, who represented a Tokyo development company called Seibon, had come to take possession of the Miyazaki family’s 960 tsubo (3,168 sq. meter) Kichijoji plot and everything on it. The plot had been in Miyazaki hands for more than 200 years, and Jorge’s 93-year-old father, Kinchiro, and 89-year-old mother, Masae, still lived on it.

In March, they lost everything, victims of what they believe was daylight robbery by their bank.

Their problems date back to 1990, when Carol’s in-laws took out a 2.26 billion yen yen loan with their local branch of what was then Fuji Bank, repayable over 40 years, to redevelop the plot. Miyazaki Shoji, a company formed by their younger son, Seisaburo, built a new 5-bedroom house for themselves and Seisaburo’s family.

In 1992 they added a 2-tier car park to bring in income, and a 6-floor office building, with Carol and Jorge’s apartment on the top. “We designed it imagining we would live there forever,” said Carol. “It was to be our inheritance.”

Last year, Mizuho, which had taken over Fuji Bank, said they wanted to renegotiate the terms of the Miyazaki loan, halving the period of repayment from 40 years to 20 and “doubling monthly repayments from 2 yen 1/2 million a month to 5 million yen,” says Carol. “Of course we couldn’t pay.”

The family, who say they filed their payments on time for 13 years, argued their case through lawyers, but while negotiations were still going on, they say Mizuho pulled the plug.

The bank called in the 1.935 billion yen still owing. With all rights reversing to a company called the Resolution & Collection Corp. (RCC), Mizuho froze all assets — meaning Deposits, Fixed Deposits and Tenant Deposits. When Masae Miyazaki went to draw on her regular account in February this year, she was taken aside into a small room and told, “Sorry (there’s nothing there).”

The Miyazakis, say experts, were the victims of “kashi-hagashi,” literally “lend, then peel back more than you lent.”

Lawyer Masae Shiina, who specializes in representing clients with bank problems, says it’s illegal for banks to unilaterally change the terms of a loan, but many clients are unaware that the small print in their contracts sometimes offers banks a way to call in loans at will.

“Clients are verbally assured they have so many years to pay off their loan before finding out that their contract says no such thing,” she says.

“The big banks are totally unscrupulous and sneaky about the way they manipulate contracts. They’re trying to improve their balance sheets at the expense of smaller clients.”

While changing the loan terms is illegal, says one lawyer close to the case, “if (for example) a client fails to make payments on interest or principle on time three times, then the banks can step in.”

“The problem is that banks are cruel and inhuman in the way that they pressured old people (during the late bubble period) into taking out loans — often to guard against inheritance taxes — then leaned heavily on people when economic conditions changed,” he says.

And the Miyazakis case is not unusual, says Ikko Nakatsuka, the deputy minister of state for economic and fiscal policy and financial services in the DPJ’s shadow Cabinet.

“I’ve dealt with many similar cases. The Koizumi Cabinet has sent the message to the Financial Services Agency that bad loans are to be cleaned up,” he says.

“So the banks are trying to clear deflating assets from their books. In the early 1990s, the banks tried to persuade people like the Miyazakis to borrow money. Now times have changed and they’re trying to force them to pay back more quickly. It’s very cowardly behavior. I’m going to raise their case in the Diet.”

Benjamin Fulford, Tokyo bureau chief of Forbes Magazine and author of “The Yakuza Recession” is more forthright in his views on the current state of bank-client relations in Japan.

“The banks are squeezing individuals like crazy to make back their corporate loses and there are many cases of downright fraud. They’re evil and they’re getting away with it because the politicians protect them.”

The Miyazakis are considering a lawsuit, but they could be in for a long haul. “There are thousands of lawsuits and individuals lose 95 percent of them,” says Fulford.

“It’s a mistake to think of Japan as a country with a functioning legal system. For example, they don’t have discovery here, which means that the banks are under no obligation to reveal internal documents relating to loans.

“The whole relationship between banks and individuals is very nasty here.”

Mizuho Bank declined to comment for this article.

A representative for Seibon said his company has “no special relationship” with Mizuho. “We handle a lot of property for various clients. The Miyazaki case was nothing special.”

Carol says that rather than being angry, her in-laws are embarrassed by their situation. “They just want it all to go away. I keep saying to my in-laws, we have to warn people that this is going on.” Neighbors, unwilling to be named or complain, have also lost property and assets. “We’ve heard it’s happened to several long-standing families in Kichijoji. If it can happen to us, it can happen to anyone.”

Carol has written to Finance Minister Heizo Takenaka and to ex-DPJ leader Naoto Kan, who represents Kichijoji, but has received no reply. Earlier this year the subject of “kashi-hagashi” was raised briefly in the Diet. But so far no powerful political voice has protested or taken the banks to task.

Meanwhile, Carol and Jorge are preparing to abandon the apartment they thought they owned, and the rest of Jorge’s family have moved to rented accommodation. Development in Kichijoji is booming and Mizuho’s balance sheets are improving, removing pressure on the government to bail it out.

Carol’s friends abroad have written letters commiserating her on the family’s bankruptcy. “But we didn’t go bankrupt,” she corrects.

“We paid our bills every month on the nose for 14 years and were ready and able to continue doing so under the original terms of the loan. Our homes, livelihoods and future have been stolen.”