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Company’s Debacle Symbolizes End of an Economic Era for Japan

May 1, 1991

TOKYO (AP) _ In the heady days when the value of assets held by Japanese companies seemingly soared toward infinity, it seemed as if nothing could go wrong.

But the ever-expanding ″bubble economy,″ as the Japanese call it, appears to have burst. Many Japan companies that profited from the 1980s era of booming speculative investments are now paying the consequences in the dawn of a new era of tight money.

And many Japanese people apparently couldn’t be happier.

″Most Japanese, who sincerely work hard for a living, view the people who made lots of money effortlessly with disgust,″ said Johsen Takahashi, director of the private think tank Mitsubishi Research Institute.

The public has been particularly enthused by the rapidly unfolding story of Itoman, a medium-size trading house based in the western city of Osaka that was behind a labyrinth of complex art and real estate deals.

The case is widely viewed as an allegory of the times -- of how using Japan’s complex system of ″zaitech,″ or financial engineering, can go awry.

Zaitech describes the practice among Japanese companies of trying to boost profits by dealing in assets such as stocks, real estate and art, whose prices soared in the cash-rich, speculative markets of the 1980s.

But over the past year, Japan’s central bank has raised interest rates -- in part to discourage excessive borrowing for speculative land deals -- and hundreds of companies such as Itoman have found themselves unable to finance their debts.

Last week, prosecutors raided about 50 sites as part of a broad search for evidence linking the debt-ridden trading firm to questionable art purchases.

The art deals were among speculative transactions that have plunged Itoman into debts reportedly totaling about 1 trillion yen ($7.27 billion).

The search came after Itoman filed suit Tuesday in Osaka District Court against Suemitsu Ito, one of its former managing directors, and against Osaka- based financier Ho Yong Chung, on allegations of breach of trust in connection with the art dealings, according to company spokesman Toshihiko Takamura.

As managing director, Ito had bought on behalf of Itoman 219 works of art for 55.7 billion yen ($405 million) from Ho, another company official said.

Japanese newspapers reported that Ho sold the art at prices several times what he had paid just months earlier and well above their true market value. Itoman and police officials contacted by telephone by The Associated Press would not comment.

The ultimate destination of the purported excess profits remains unclear.

On Thursday, all major nationwide papers ran editorials crying for a thorough investigation into Itoman’s ventures.

″The years when companies and individuals were floating in the bubble economy were an abnormal era. Dishonest money-making schemes were rampant,″ said the Yomiuri, Japan’s largest newspaper.

″You could say this case arose because people have forgotten the virtue of working hard for a living,″ said the newspaper Mainichi, predicting that many similar examples would surface.

Itoman’s quandary reaches beyond the company itself to the head of its industrial family -- the Sumitomo Bank which loaned money for the speculation. Last year, Sumitomo rescued Itoman from real estate debts estimated at 350 billion yen ($2.54 billion).

After an investigation, Finance Ministry officials told Sumitomo in February to improve its lending operations. On Wednesday, Moody’s Investors Service announced it was reviewing the bank’s rating.

The credit squeeze has accelerated the pace of bankruptcies, especially among highly leveraged real estate companies and art dealerships.

In December, 90 real estate agents filed for bankruptcy, the highest level in 15 years, according to Tokyo Shoko Research Institute, a private research group.

The bankruptcies are discouraging speculative ventures among surviving companies.

″If you really put the fear of God in people and they realize they can’t make money anymore, they won’t do it,″ said Kenneth Courtis, senior economist at DB Capital Markets.

He says many more Japanese firms other than Itoman have been burned by their foray out of traditional business into riskier ventures.

″Think in terms of the tip of the iceberg,″ he said.

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