Mid-October 1991.
Tokyo, Marunouchi.
Fuji Bank Head Office.
At 9:20 AM, the doors of the board meeting room had been closed for over ten minutes.
Tokyo had just experienced a rainstorm in October, and large patches of grayish-white clouds still pressed down towards the Imperial Palace. Looking out through the floor-to-ceiling glass of the meeting room, the exterior walls of those high-rises in Marunouchi seemed covered in a thin mist.
Both sides of the long table were crowded with people.
Kagawa sat in the third position on the right hand side of the President.
In front of him lay a thick blue folder with a line of black words printed on the cover.
"Internal Preliminary Audit Materials for the First Half of Heisei 3"
On top of it was also a red stamp.
"Board of Directors Only"
For Board of Directors Review Only.
The Senior Managing Director in charge of finance stood beside the projection screen, holding a slender metal pointer.
"The above are the first-edition figures compiled by the Finance Department based on the book data of September 30."
After speaking, he pressed the button beside the projector.
The table on the screen turned to the next page.
"If processed according to the current accounting caliber, the ordinary profit for the first half of the fiscal year will still remain positive. Securities investment income has dropped significantly compared to the same period last year, but overseas business and fee income can cover most of the gap."
"As of the end of September, the bank's ordinary profit for the first half of the year was 124 billion yen. This is a decrease of about 38% compared to the same period last year, but it still maintains profitability."
Someone on both sides of the long table gently let out a breath.
In a year like this, an interim settlement that still showed profit was enough for quite a few people to go back and sleep peacefully.
Over the past few months, there was new bad news every day in the Japanese financial circle.
Real estate companies went bankrupt, securities firms were investigated, banks constantly demanded clients to replenish collateral, and even listed company stocks once regarded as the safest could no longer be guaranteed by anyone to be more valuable next year than this year.
As long as Fuji could finish this first half of the fiscal year looking profitable, there was still room to delay many things.
However, the Senior Managing Director of Finance did not sit down.
He raised the pointer and tapped a very small number in the lower right corner of the table.
"However, this result has a prerequisite."
The few people who had just relaxed looked back at the screen.
"Over the past half year, the risk inspection team has submitted a total of forty-seven loans to the Finance Department that need to be re-examined and re-classified. The current preliminary audit report only includes the portion that has already been confirmed as defaulted."
He slowly drew a line along that number with the pointer and stopped at the blank grid next to it.
"If all forty-seven loans are reclassified according to actual conditions, and the collateral is re-evaluated according to the benchmark land prices announced in September—"
He turned to the next page.
"The internal calculation value of the capital adequacy ratio will drop from the currently planned 8.6% to 8.2%."
"The bank will turn into an ordinary loss for the first half of the year."
The backs of those few people who had just exhaled lightly left the backs of their chairs.
The atmosphere instantly became heavy again, and no one spoke along the entire long table, leaving only the sound of turning pages.
Senior Managing Director Tanimoto, sitting diagonally across from Kagawa, tapped the silver cigarette case in his hand on the table. Smoking was not allowed in the meeting room; he was just used to holding something in his hand.
President Okabe's gaze remained fixed on the face of the Senior Managing Director of Finance, and he spoke after several seconds.
"The 8.6 planned to be announced and this 8.2, the difference in between is those forty-seven loans?"
The Senior Managing Director of Finance lowered the pointer to his side and slightly lowered his head.
"Yes, President."
"Forty-seven loans, 0.4."
Okabe closed the blue folder in front of him, pressing his palm on the cover.
8.2.
Only 0.2 percentage points away from the 8% required by the Bank for International Settlements.
And there was only a year and a half left until the final compliance deadline in March 1993.
The pointer of the Senior Managing Director of Finance moved to another column of figures.
"Additionally, I need to remind everyone that a considerable part of the bank's own capital comes from the unrealized gains of held stocks."
"According to current calculations, for every 1,000-point drop in the Nikkei average, the ratio will drop by about 0.18."
He paused and withdrew the pointer to his side.
"In other words, if it drops another 1,100 points or so from the current position, we will hit the line. And since this year, the Nikkei's largest single-month decline has already exceeded this number."
This time, no one spoke.
For decades, Japanese banks and enterprises have held shares in each other.
Fuji held stocks of the Fuyo Group and a large number of client enterprises. When bought, the prices were low, and after stock prices surged all the way up, a huge amount of unrealized gains appeared on the books.
And the rules of the Bank for International Settlements allowed Japanese banks to count 45% of these unrealized gains into their own capital.
During those years when the bubble was at its peak, this was the easiest source for Fuji's capital ratio. Stock prices rose, capital rose along with it, and the bank didn't need to earn an extra penny.
Now it was the reverse.
Every time the stock price dropped a notch, the unrealized gains became thinner, and the capital ratio fell along with it.
Fuji didn't need to do anything wrong; as long as the market in Kabuto-cho continued to trend downward, it would step by step approach the red line.
1,100 points, placed in this year's market, was merely a bad month.
President Okabe's fingers slowly stroked the edge of the blue folder. After a long while, he turned to the other side of the long table.
"Mikami-kun, what about the situation overseas?"
Executive Director Mikami in charge of international business half-bowed from his seat.
"In New York and London, over the past month, four foreign banks have shortened the unsecured interbank lending period to our bank. They used to give three months, but now they are only willing to give one month. One of them has already started asking us to provide government bonds as collateral."
Tanimoto's cigarette case stopped.
"After the collapse of BCCI in July, the Federal Reserve suddenly tightened inspections of foreign banks in the United States a lot."
"The New York branch received a written inquiry last week, asking us to explain the large real estate exposures on both sides of Japan and the United States. Over in Washington, if the foreign bank supervision bill currently being deliberated by Congress passes, the Federal Reserve will have the power to directly terminate foreign banks' businesses in the United States."
Mikami placed a sheet of paper he brought onto the table.
"Rating agencies are also re-evaluating the ratings of several major Japanese banks. Our bank is on the list."
Okabe's fingers stopped.
"Domestic bad debts can be digested slowly," Mikami looked at him, "but dollar liquidity cannot be digested. If overseas banks collectively contract their credit lines to our bank, we must sell dollar assets and securities, and finally withdraw domestic loans. But once large-scale loan withdrawals happen—"
Tanimoto interrupted him.
"Does Executive Director Mikami mean that starting today, Fuji Bank won't even save Fuyo's enterprises?" (Fuji Bank is the core enterprise of the Fuyo Group)
"I didn't say that."
"Fuyo General Development has over two hundred employees, and dozens of subcontractors are still pressed over in Makuhari," Tanimoto twirled his cigarette case, "Fuji is the main bank of the Fuyo Association. Over the past decades, whenever a group member ran into trouble, which time wasn't it us stepping up to cover the bottom? If we shrink back ourselves first, how will the presidents of the Fuyo Association view this?"
"Then let me ask Senior Managing Director Tanimoto a question," Mikami's voice also turned cold, "that round of cleanup we did last year, was it actually cleaned up, or was it postponed for another year?"
Tanimoto's expression darkened, and he was just about to say something.
Okabe raised his hand slightly, interrupting the two of them.
"Enough."
Tanimoto opened his mouth, but closed it again.
In the meeting room, only the sound of the air conditioner blowing remained.
Okabe's gaze shifted from Mikami to Tanimoto, then away from Tanimoto, and finally stopped.
"Can anyone tell me, how much longer can we actually hold on?"
No one answered.
A few seconds later, gazes from both sides of the long table turned over one by one, finally landing on the same person.
Okabe also turned his head, and everyone looked at Kagawa.
"Kagawa-kun, what do you think?"