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Image Repair at Japanese Brokerages : Securities: Four big firms disclose recipients of payments for stocks losses in an effort to "win back trust."


TOKYO — In what they said was an effort to "win back trust," Japan's big brokerages agreed Monday to release a list of customers who received compensation for stock market losses.

The presidents of the "Big Four" brokerages jointly decided to formally release the names after the list was published in the Nihon Keizai Shimbun, Japan's leading business daily, and government officials called for disclosures.

Some of Japan's biggest manufacturing companies, including Toyota Motor Corp., Nissan Motor Co. and electronics leaders Matsushita Electric Industrial Co. and Hitachi Ltd., were among the investors given a total of $930 million to cover their stock market losses, according to the list.

Regional banks and credit associations were also on the list published in the newspaper, but only one commercial bank, the former Saitama Bank, was named. A spokesman for Kyowa Saitama Bank Ltd., the product of an April 1 merger of Saitama and Kyowa Banks, said the bank was investigating the report.

Nikko Securities President Kichiro Takao said his brokerage compensated long-term clients because "we felt the customers expected us to do better."

Hideo Sakamaki, the president of Nomura Securities Co. who had earlier declined to release the information because "the way of the merchant" was to protect its customers, told a crowded room of reporters that the company changed its mind because of calls in Parliament, the Ministry of Finance and the public for release of the information.

Finance Minister Ryutaro Hashimoto had urged the securities houses to release the names, and Prime Minister Toshiki Kaifu had threatened parliamentary action to force the disclosures.

"We will make sure it never happens again," said Sakamaki in a tone far more humble than any statement his predecessor, Yoshihisa Tabuchi, could muster when he resigned his position as president. Tabuchi, who became vice chairman, was subsequently forced to resign that position also.

"What we are seeking is the rebirth of the company of Nomura," Sakamaki said.

Regarding charges that Nomura pushed up the price of Tokyu Corp. shares after selling large numbers to a gang leader, Yasuhiro Mizuuchi, executive vice president, said the company did not believe that it had engaged in stock manipulation but would "reflect anew on its deeds if it turned out such reflection was deemed necessary."

Nomura said none of the names on its list are tied to politicians or gangsters. Companies that received compensation, Mizuuchi said, included those that believed that their return on investment had been lower than forecast, those that believed that their accounts had been mismanaged and at least one case in which Nomura was accused of churning the client's account.

Yamaichi Securities said in a separate press conference that at least half of the 66 companies on its list demanded compensation for their stock market losses. Hanwa Co., a steel distributor that has been heavily involved in financial activities, received $15 million in compensation, while its affiliate, J. C. Pearl, received $30 million.

Yamaichi said the most common method of compensating its clients was to buy bonds from them at above market prices.

A Daiwa executive said customers would come to the company and insist that if they didn't receive compensation they would "lose face." Daiwa said some companies, including Toyota, asked that its name not be disclosed.

According to wire service reports, Toyota has denied receiving compensation for securities losses from Daiwa. "Toyota does not participate in special 'Eigyo Tokkin' funds managed by securities funds, and there is no truth to the allegations that we've received loss compensation from any securities companies," said Toyota Executive Vice President Masami Iwasaki, according to a report by the Dow Jones News Service.

Toyota declined to comment on whether the company might have been compensated for some managed funds without Toyota's knowledge.

Nissan said in a statement Monday that it was compensated for investment losses by a brokerage but had never sought such compensation and had not previously been aware that it received any.

The compensation lists provided by the securities firms covered the period starting in 1988 and ending in March, 1990. The bulk of the payments were made between December, 1989, and March, 1990, during which there was a sharp fall in stock prices. It is unclear whether there will be further disclosures of compensation payments for the period that ended March, 1991.

Government officials have said they will pass a law making it illegal to make compensation payments to customers. But insiders say there are so many ways such payments can be made that it may be difficult to stop the practice. Brokers frequently, for example, offer special clients shares in companies that their inside information suggests are most likely to rise in price.

Terry Marsh, a finance professor at UC Berkeley who is now consulting with two Japanese financial institutions, says fixed commissions in Japan mean large customers generate huge profits. Those large profits make it worthwhile for securities companies to cover customer losses. Where commissions are not fixed, as in the United States, large clients pay less for trades and consequently securities firms have less incentive to cover losses of large customers.

Promising to cover clients' investment losses is against the law. Doing so after losses are incurred is not illegal, but violates a 1989 Finance Ministry directive.

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