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JAPANESE LENDING AND INVESTMENT WON'T RETURN TO '80s LEVELS, LEVENTHAL STUDY SHOWS

 JAPANESE LENDING AND INVESTMENT WON'T RETURN TO
 '80s LEVELS, LEVENTHAL STUDY SHOWS
 Cost of Capital May Rise Worldwide;
 Opportunities Now Exist for Loan Securitization
 LOS ANGELES, Dec. 23 /PRNewswire/ -- Japanese investment in the United States peaked in 1988 and will not return to those levels in the near future because of an overhaul in Japan's financial system, according to a new study by the national accounting firm of Kenneth Leventhal & Company (KLCO).
 "A restrictive monetary policy, higher bank capital requirements, a bearish stock market, the banking industry's low profit margins and falling land prices have changed the profile of the Japanese financial system," said Jack Rodman, director of the firm's Pacific Rim practice. "These changes are restructuring the Japanese financial system into one that focuses more on profits than growth, places a greater priority on domestic lending and forces institutions to compete on a more level playing field with the world's banks," he added.
 Rodman said the newly emerged Japanese financial industry will see a number of mergers, contracting the once plentiful supply of low-cost financing to the world's capital markets. "The door is now open for U.S. and European banks to compete, but the cost of funds will come with a higher price tag for borrowers," he added.
 The study notes that the contraction of credit in Japan is being felt around the world. Long-term capital outflow fell in 1990 to $44 billion from a high of $130 billion in 1988. Furthermore, for the first six months of this year, there was a net inflow of long- term capital amounting to $4 billion, the first inflow of capital in 11 years.
 Japanese Capital Flows: Availability and Constraints:
 The surge in Japanese investment worldwide that capped the 1980s was led by an inexpensive cost of capital and the eagerness of banks to expand market share. The KLCO study, "Japanese Capital Flows: Availability and Constraints" explains how this liquidity resulted in higher asset values of Japanese property and financial instruments that investors borrowed against to acquire trophy properties, artworks, entire companies, and stocks and bonds.
 "But higher interest rates and the resulting crash of the Japanese stock market caused the value of stocks to plunge, consequently shrinking the banks' capital base," said Jack Barthell, partner in the KLCO Los Angeles office. "So now the banks are being forced to raise capital at higher funding costs at the same time they are being asked to set aside higher capital reserves in accordance with new international bank standards," he added. The outlook for real estate loans is especially bleak since mortgage and construction loans require more capital reserves, Barthell explained.
 The Japanese banking crisis is being exacerbated by slumping land prices, which have dropped as much as 30 percent in Tokyo and Osaka.
 Troubled Debt Restructuring:
 "The drop in asset value coupled with declining cash flows resulting from lower occupancy rates is forcing more domestic and foreign borrowers to default on real estate loans. The increasing number of troubled real estate loans may push prices down further," Rodman warned. Japan's Federation of Bankers' Association recently reported that non-performing loans for the country's major commercial banks exceeded general loan loss reserves and the number of bad loans is likely to rise.
 Experience with troubled debt restructuring in the United States could start a move toward restructuring of the growing number of these bad domestic loans.
 Securitization:
 Problems in the Japanese financial system have opened up more than lending opportunities for U.S. financial institutions, Barthell noted. "The higher international reserve standards that are forcing Japanese banks to get more loans off the balance sheet will lead to a greater reliance on securitization," he predicted. "Now is the time for American investment bankers and real estate finance experts to start flexing their muscles in Japan, bringing the technology and skill needed to restructure Japanese real estate companies and underwrite and securitize corporate and consumer debt," Barthell said.
 Kenneth Leventhal is the country's 10th largest accounting firm known for its expertise in real estate and financial services and its comprehensive studies on Japanese investment in the United States. It has offices in 13 cities and is affiliated internationally with Clark Kenneth Leventhal.
 -0- 12/23/91
 /CONTACT: Francie Murphy of Casey & Sayre, 310-457-3676, for Kenneth Leventhal & Co./ CO: Kenneth Leventhal & Co. ST: California IN: FIN SU: ECO


SE -- LA009 -- 4896 12/23/91 14:36 EST
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Date:Dec 23, 1991
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