David Atkinson was still in his 20s when he rose to fame as a Japan-based banking analyst with the U.S. investment bank Salomon Brothers, prior to him moving to Goldman Sachs.
Having graduated from Oxford University with an M.A. in Japanese studies in 1987, and following a few years’ stint in London and New York at major consulting and outsourcing firm Andersen Consulting (now known as Accenture), he arrived in Japan in 1990 and soon became embroiled in the most dramatic and turbulent chapter in the country’s peacetime banking history.
Throughout the 1990s and the first half of the 2000s, Atkinson, thanks to his objective and cool-headed analyses, was one of the most influential observers of the sector. And what a time it was to be in such a key position, with several banks going to the wall, the nationalization of two long-term credit banks and mega-mergers that saw the nation’s 10 major banks consolidate into just three.
The cause of all this unprecedented turbulence was, of course, the bursting of Japan’s asset-inflated bubble in the early 1990s, which triggered a sudden dramatic fall in the value of real estate — real estate that banks held in vast amounts as collateral for loans they had extended to both individuals and businesses.
With collateral values plummeting, banks were suddenly awash with problem loans as the number of borrowers unable to meet their repayments spiraled. Then, as banks were forced to allocate more capital to cover their losses on loans, their lending capacity weakened and triggered a massive credit crunch. In a vicious downward spiral, that crunch in turn sparked a chain reaction of corporate bankruptcies, rising unemployment — and a surge in the number of suicides.
In what was an astonishing span for such a crisis, this bad-loan mess took some 15 years— until around 2005 — to sort out, largely because Japan’s banks and regulators were woefully slow to address its root causes.
Not so Atkinson. The English native recalled in a 2011 interview in the business daily Nihon Keizai Shimbun that, as early as 1991, he wrote a report to investors warning that Japanese banks were saddled with ¥20 trillion of nonperforming loans. That single report sent shock waves through the financial sector and triggered a massive selloff of the banks’ shares in the Tokyo stock market.
Following that report in 1991, Atkinson told the Nikkei how he was bombarded with angry calls from bank executives and regulators in Japan, and also received fax messages threatening him in person. Nonetheless, based on his “bottom-up” analyses of banks’ assets in the ’90s, he continued to publish his incisive reports.
Then in 2007, Atkinson quit Goldman Sachs where, as the chief banking analyst, he had been promoted to the lofty position of partner. For a while after that, he stayed out of corporate life — “doing nothing,” as he says. Fate dictated, though, that he would soon join the management of a company in a completely different field: Konishi Decorative Arts and Crafts Co., a 300-year-old Tokyo-based restorer of traditional architecture.
Consequently, Atkinson’s financial expertise and his ability to see things as they are, devoid of illusions or bias, are very much alive today as he fills the roles of both chairman and CEO of the 70-employee company of lacquer workers, coloring craftsmen and metalworkers.
Now 47, Atkinson, who is single and hails from a tiny village outside Nottingham in the Midlands of England, recently spoke to The Japan Times at his office in Konishi’s Minato Ward, Tokyo, headquarters, where he recounted his high-flying days as an analyst and the remarkable how and why he came to be in his current position running a “no-growth” heritage company so far from his homeland. In an interview conducted entirely in Japanese, he also offered no-holds-barred comments on what he sees as Japan’s haphazard approach to preserving its wealth of cultural properties — and much, much more.
What are some of the projects your company is working on at the moment?
We are commissioned to restore shrines and temples across the nation. For example, we are reapplying lacquer to the big Black Gate right in front of Kaneiji Temple in Ueno (central Tokyo). That job will be completed around this fall. As for shrines, we’re currently working on Osaki Hachimangu Shrine, a National Treasure, in Sendai, Miyagi Prefecture.
Does each repair job take a number of years to complete?
It depends. Some shrines have a “shikinen sengu” approach, which means parts of their properties are rebuilt every 20 years.
Our company originally started with work on the two shrines and one temple (comprising the UNESCO World Heritage Site) at Nikko in Tochigi Prefecture, including Toshogu Shrine and Futarasan Shrine, and we have undertaken the restoration work there ever since. So we are constantly working on Toshogu, which has about nearly 50 designated National Treasures and Important Cultural Properties. By the time we finish work on one of them, something else from the rest is ready for repair.
The restoration industry sounds to be quite unique. What’s the contract structure like?
Well, Konishi Arts itself is a very unique company, and almost all its work is related to National Treasures or Important Cultural Properties. So the property owners typically get subsidies for restorations and/or repairs from the government, and they give us orders. And just like the tendering for construction work, we must enter bids.
You yourself are also quite unique, being a foreigner heading such a traditional company.
I’m the only one. I haven’t met anyone like me.
How did you enter this business?
This company has always been owned by the Konishi family. They were long looking for successors but couldn’t find them.
I happened to have my cottage in Karuizawa (Nagano Prefecture) next to the owner, so we were social as neighbors. When I retired (from Goldman Sachs), or even before that, knowing that I had done some consulting work and was familiar with Japanese culture, she asked me whether I could give the company some advice. So it wasn’t like I had special interest in the company or I went looking for the job myself.
Why did you decide to accept the offer?
Because I was asked, I visited the company to see what it was like. I had also always casually hoped that Japan was taking care of its cultural assets properly — but I learned otherwise and found that there were many problems (with the industry).
I never expected myself to be the president. But when the president before me fell ill and was hospitalized, there was nobody else to run the company.
How were you received?
I would admit that, in a traditional industry like this, there has been some opposition (to a person like me taking the helm). But my position is, well, I’m not the one who pushed myself in. So what I say to people is, “If you don’t like me, find someone who can do both culture and business.”
What kinds of problems did you find?
You might think companies in this industry must be all be old, but that’s not the case. There are only a few long-standing ones, and the rest are new — like one or two generations old. So companies with a history of 10 years or 50 years comprise the majority. There are many reasons for this, but the fact is, sadly, there are very few old companies left.
While many companies boast “traditional techniques,” their know-how is often acquired in college or from somewhere they can’t even name. However, ours and one named Kishino Arts have both passed down their traditional techniques through the workers over a long long time. New companies tend to boast of using the “greatest” traditional techniques, while really traditional companies don’t boast, because they take their work for granted.
It’s okay to have new entrants, but in a country like Japan where anything new is popular, and in this particular market with no growth, many old companies have gone under.
Another thing is that, right now, the bidding for restorations of cultural properties is based solely on prices. A company that enters the lowest bid for a restoration project wins the contract — regardless of its ability or track record. So it’s possible for some small company with annual sales of ¥100 million to win a ¥300 million contract.
What happens then is that, because they don’t have enough skilled manpower within the company, they round up people with little experience from the outside — like students or arubaito (part-time workers) or some low-level craftsmen who have only painted bowls, for example. At Konishi Arts, we made all of our craftsmen seishain (regular full-time employees) two years ago.
Does that mean you changed the pay system?
Yes. We pay the craftsmen monthly salaries, so their livelihood is more stable.
Before that, were they paid daily wages?
Yes. I think most other companies in this industry still pay them daily. Our staff’s pay does not fluctuate by season any more, thus allowing them to concentrate more on their work. It has also helped maintain the quality of work.
Is it your stance that the Japanese government spends too little on the preservation of cultural assets?
Yes. The government definition of cultural properties is very narrow. Shrines, temples and castles are relatively well recognized, but few private residences from a long time ago are. As a result, the landscapes of communities have lost their beauty.
UNESCO’s World Heritage program, for example, targets a wide area for preservation, but the Japanese government only registers very specific stuff. So what happens is that the main building of a shrine can be a designated cultural property — but the fence around it is not. This results in sparkling shrine buildings amid shabby surroundings.
Given the constrained national budget these days, how can we ensure such public expenditures don’t go to waste?
I think it depends on the degree of spending. Last year, the government spent only ¥8 billion on the preservation of architecture. That is just too little. It’s 0.009 percent of the national budget! I don’t think doubling that amount would be a waste of government money.
How does Japan’s preservation budget compare with other countries’?
As a simple comparison, the United Kingdom spends about ¥50 billion — and its population is about half that of Japan. So when you compare that with the size of Japan’s GDP or national budget, it wouldn’t be odd for Japan to spend ¥100 billion.
However, that doesn’t mean the industry is capable of undertaking work worth ¥100 billion right away. We don’t have enough craftsmen for that. But unless government spends more, there’s no point in companies employing more craftsmen.
Would government investments in cultural properties help the economy?
Sure. See the example of Kangiin Shodenzan Temple, for which we did the restoration work (see accompanying story). The economic effect of the restoration has been enormous. Compared with the amount of government spending on building so-called hakomono (public halls), its spending on the repair and preservation of shrines and temples is much more meaningful, I think, as they have played a key role in their communities for a long time.
Okinawa Prefecture, for example, last year received ¥250 billion in subsidies from the national government, and this year it will get almost ¥300 billion. And the national government hands out loads of money to communities surrounding nuclear power plants. Yet it only spends ¥8 billion on cultural properties.
Also, with the extreme appreciation of the yen and the hollowing out of domestic industries, the livelihoods of many people — especially those in the low-income bracket — are becoming threatened. The government can spend more money on cultural properties and let companies like ours employ people and train them to become craftsmen — so keeping them off welfare in the process.
You are obviously very knowledgeable about cultural issues, but in Japan you have been better known as a former banking analyst for Goldman Sachs. After all, you did happen to come to Japan at such a dramatic time — right when the economic bubble burst.
There is actually a reason for that. I was doing consulting work (with Andersen Consulting) for Japanese financial institutions in New York right before that, and because the bubble had just burst, all my clients stopped doing business in New York. So I found I had little work there, and as there was little work in London at the time, I came to Japan with Andersen.
But then you moved to Salomon Brothers as an analyst of Japanese banks. Am I right in thinking you had no previous experience in that area?
Right. I had been doing consulting work only. Then I had a call from a friend who asked me if I wanted to be a banking analyst. It wasn’t something I’d aspired to do, but at that time there weren’t many analysts with proper backgrounds.
I might sound harsh, but the people who were doing (Japan-related work) weren’t specialists. Back then, Western institutions were still in the middle of systematically training their Japan experts to send out here — people with a knowledge of economics and business as well as Japanese-language ability.
In 1987 or ’88, they were just beginning to produce people with proper credentials (including me). Prior to that, Westerners working in Japan were English teachers or some Buddhism fans or those who had had some home-staying experience here.
What impression did you have of Japan before you arrived here in 1990?
Not much, except that I could get a job (involved with Japan). Japan’s economy was good and there were few people who studied it. That’s the level of interest I had. The work I did as an analyst wasn’t that special.
Surely that can’t be true.
Well yes. I was a bit famous, but the analyses I did weren’t anything special. I reported very simple stuff.
Well, when the economic bubble burst in Japan, although I simply pointed out there must be lots of bank loans to companies going sour, everyone was negative about it.
At that time, it wasn’t uncommon to see assets whose collateral value had fallen by 90 percent. I just calculated the aggregate total of such assets.
At that time, nobody else was doing that, but I was a gaijin (foreigner), so I was neutral. I neither hated nor loved Japan. So I did an unbiased, objective analysis.
Many other analysts were creating myths about Japan, so I stood out. I forgot when exactly it was, but at one point I reversed my position and recommended investors to buy Japanese bank shares. I was the first one who said that. It sounds bad, but other analysts recommended buys when the share prices were going up, and when the prices started falling, they kept insisting that investors had nothing to worry about.
That was until they fell by 90 percent. Then they would suddenly start saying: “Sell, sell, sell!” (Laughs).
I was the opposite. Just when there was a consensus in the market that bank shares should be sold, I said, “No — it’s a buy!” I was heavily criticized for that. But in my view, by then bank shares had become almost worthless, and the banks’ value had fallen so much over more than 10 years, and all that time they had written off bad loans, it was obvious their finances had improved.
When you finish writing off all the bad loans, you can only increase your lending, because you can’t write off more than you have lent.
If you were to cite one memorable report you have written, which would it be?
That must be the one in which I pointed out — long before the mergers into mega banks — that Japan would only need two to four major banks. Back then, there were 11 or so major banks. I just outlined the “ideal” situation, given the size of the Japanese economy, and based on international comparisons. I was totally pilloried for writing that report, though. Many analysts and clients said I had gone mad — at last. But then banks started merging here and there.
Did you always receive lots of criticism for your work?
Yes, a lot — from the beginning through to the end (of the dramatic restructuring of the banking sector).
What were the criticisms — and who was doing the criticizing?
Well, from the authorities, for one thing: the Financial Services Agency. And the banks. They all said they were annoyed by my report.
However, their responses were purely emotional. People called me a traitor because I wrote things that they didn’t want to see. Some people said I was involved in some kind of CIA conspiracy. I was told many things.
My position was that I was entrusted with elderly investors’ pension funds and I had a responsibility to have them managed carefully. But many people said we must support such-and-such a bank, so I was in a constant battle with those people.
Why did you leave the job?
I felt that I had completed my role. By the time I quit, the economy was in a stable condition, the banks were stabilized and the period of big reforms for the sector was over. So the work lost its appeal for me.
Another thing was that within Goldman Sachs I had reached the highest position I could reach, and I had been doing the same work since I arrived in Japan in 1990. I had had a great time at the company, but I was not interested in just staying on. I thought someone younger should take my job.
What did you think of doing afterward?
Nothing. I was just playing around.
I was doing tea ceremony and calligraphy. I also bought and restored a machiya (traditional townhouse) in Kyoto.
Japan has just been hit by its biggest disasters since World War II — including nuclear meltdowns. What do you think are the strength and weaknesses of this country?
I gave a talk on that just recently. I can’t really think of anything conclusive. I think the question itself is very Japanese.
One of the questions I fielded at the talk was, “What is it that only Japanese people can do?”
I can’t really answer that. I experienced the Japanese bubble, too — while I was doing consulting in New York. The Japanese people overseas in the 1980s couldn’t have been more arrogant ! They liked discussing Nihonjin-ron (theories of Japaneseness) and would stress how Japanese people were so different as a race from all others.
Right now many Japanese are at the other extreme (talking so much about how hopeless the Japanese are). There are now people discussing Nihon chinbotsu-ron (theories of sinking Japan), and I find all these theories questionable.
So do you think there is nothing that defines the characteristics of a particular country’s people.
That’s what I think personally. We are the same people, in the same developed countries, so I wonder how different the people in different countries are.
The truth is, Japan’s GDP was ¥500 trillion in 1990, and it still is now despite all the upheavals we have gone through — the bad loan mess, the Lehman Brothers shock and the Fukushima nuclear crisis. It hasn’t changed much.
But won’t the size of the economy shrink in the future? Some people say that, 100 years from now, Japan’s population will be less than half what it is now — around 49 million.
Well, actually, when you look back on the economic history of mankind, there’s no confirmed decline in GDP anywhere.
Even in a country whose population has decreased?
That’s right. During the Black Death pandemic in the Middle Ages, the population (in Europe) suffered a huge decline. But afterward, economies for the people who survived improved. Population fluctuations by themselves do not change national assets. In fact, if there are fewer people, the value of assets per person goes up. So Japan’s GDP will not grow from (its present) ¥500 trillion, but compared to times before, everyone is working more efficiently.
I think everyone should be more cool-headed. The Diet-commissioned panel’s report on the Fukushima nuclear accident (released last month) was an extremely cool-headed one, by the way. They called the accident a “man-made” one. That is the first time I’ve seen cool-headed thinking in and about Japan in the last 20-plus years I have lived here.
By comparison, after the bubble burst and share prices plummeted, people said it was a speculative move, a conspiracy, and that foreigners were to blame and Salomon Brothers traders were fueling it. But to say you don’t want to see reports about prices going down is not a real argument; it’s just your emotion.
Do you think that’s an isolated example?
Well, the same goes for laws on National Treasures and Important Cultural Properties. The government changed the laws so foreigners are barred from buying designated cultural properties — only after it got wind of such incidents. It’s stupid, because those properties were going on sale for virtually nothing, and Japanese were not even interested in buying. Isn’t it obvious who would try to buy them?
Speaking of the obvious, with the European financial crisis now a huge concern, where do you think the global economy is headed?
There have been repeated cycles of booms and busts, and right now the European economy is at a stage of adjustment.
So many people said the U.S. economy would be “over” (during the financial crisis that followed the collapse of Lehman Brothers in September 2008), but I wonder what is over now?
Granted, the unemployment rate is up, but at that time, just about everyone there was into excessive spending, buying two or three homes. When the adjustment is over, things will get back to normal. Europe’s economic activities go back hundreds of years, and just because of the problems in Greece, do you think the region’s entire economy would collapse? That is nothing but a far-fetched argument to me.
What is your ultimate goal in life?
I don’t think much about that. I’ve always been lucky. I’ve had no planning in my life. I ended up working for a consulting company because I was so busy in college and forgot to apply so I missed the job-hunting season. The only employers recruiting all year round were the British government and consulting firms, and I didn’t want to work for the government.
I’m not thinking of going back to a regular company or obsessing over profits and growth areas and so on. I like this company because it doesn’t grow, and it doesn’t change (laughs).
So do you find your current work worthwhile?
I’m half-hoping and half-predicting that the Japanese government will eventually beef up its support for preservation of the nation’s cultural properties. But until things get better and a new phase begins, I’d like to protect such assets to the best of my ability.
What will that “new phase” be like?
It will be a period in which more support is given to the preservation of such properties. I find it such a pity that old stuff (in Japan) disappears so quickly.
For example, at least one or two very old machiya in Kyoto are torn down every day. But the governments of Kyoto City, Kyoto Prefecture and Japan have done virtually nothing to preserve them. In the last years of the Edo Period (1603-1867), central Kyoto was burnt down, and in the following Meiji Era (1868-1912), many people rebuilt Kyoto, pouring enormous amounts of money into constructing top-quality machiya.
The building that used to house the Bank of Japan’s Kyoto branch (built in 1906) has been designated as an Important Cultural Property. As an example of Western architecture built by Japanese, it might look great to Japanese people, but to us Westerners it looks haphazardly Western — not Western or Japanese entirely.
It’s fine to designate that, but then why would you let the neighboring machiya — built using the best of all technologies and the best of all materials at that time — be bulldozed and burned down? That is absurd to me. So I bought one of them and am preserving it on my own. I use it as my second home, and whenever I go to Kyoto for business, I stay there. That saves the company money, too (laughs).