Clearing the bubble’s bad assets in one write-off (2000)

Choosing not to defer the negative legacy

The core of this decision is that Itochu refused to defer the latent losses buried in its balance sheet, taking a huge single-year deficit to clear them all at once. Amortize them little by little over ten or twenty years and each year’s burden grows lighter. But while the bad assets remained on the books, however much the core business earned, the profit would vanish into interest and write-downs. Uichiro Niwa chose the lump-sum route because he took the path of ending the pain in one stroke and travelling light, rather than spreading it into the future.

That said, what made the lump sum possible was also a fortuitous tailwind — the gain on CTC’s listing amid the internet bubble. Offsetting the negative legacy of the property bubble with the momentary highs the IT bubble delivered was, in part, the result of two bubbles crossing with a time lag. Even so, the financial lightness of writing the latent losses off in full and then stacking core-business profit on top later became the foundation of the Itochu that, under Masahiro Okafuji, would vie on net profit and fight for the industry’s top spot. When, and how completely, to settle a negative legacy in one go — Niwa’s decision remains instructive as one type of judgment that refuses to defer financial weight into the future.