A ray of hope appeared on an otherwise bleak horizon for Hokkaido Takushoku Bank last March when the ministry of finance arranged for merger talks to begin with Hokkaido Bank. Although both banks were suffering from a mountain of bad assets, Hokkaido Bank's ratio of soured debts was a mere 7% compared to Takushoku's 11%.
All seemed to be on track until August 29, when a major Japanese daily reported that the talks had come undone. Takushoku denied the reports but two weeks later the presidents of the two banks held a joint news conference to announce "a delay in plans to merge by spring 1998". Translated from polite Japanese into plain English, this meant the plan had been scuttled for good.
Stuck with nearly ¥1 trillion in potential defaults mostly by Hokkaido-based developers who had spent freely on grandiose projects in the late 1980s during Japan's real estate bubble, Takushoku faced bankruptcy unless it joined forces with Hokkaido Bank. But Takushoku executives just could not bring themselves to come clean about the exact levels of bad assets they actually had in their portfolios.
"Takushoku people did not play their cards very well," says Paul Heaton, financial sector analyst at Deutsche Morgan Grenfell in Tokyo.