Entering private mortgage guarantees, and leaving public schemes behind (1997)

The single fact of belonging to no group

When it moved into the private market in July 1997, this company had little to sell. Sixteen years of trading amounted to guarantees attached to public lending schemes; capital still stood at ¥50 million; the branch list ran to Osaka, Yokohama and Sapporo. What it had was one fact: it belonged to no financial group. To a bank with its own captive guarantor that made it a competitor — but to a shinkin bank, a credit union or an agricultural co-operative with no such vehicle, it was a counterparty that could be dealt with on identical terms across the whole spectrum of institutions. That guaranteed obligations to shinkin banks stood at ¥4,614.6bn at the end of March 2012, against ¥1,703.0bn for banks, shows where it reached first.

It is harder to argue that the entry was made having read the public lender’s retreat in advance. In fiscal 1997 the Government Housing Loan Corporation still accounted for 33.5% of new housing loans; the fall to 2.2% came eight years later, in fiscal 2005. What was visible at the moment of entry looks to have gone no further than the fact that the private share was rising. And the balance that accumulated was also an accumulation of future subrogation payments: in the year to March 2012 the company paid out ¥18.8bn and recovered only ¥10.9bn. In a business where fees are received first and drawn down afterwards, success or failure was settled not by the decision to enter but by fifteen subsequent years of underwriting and claims management.