In a dramatic similarity to HBOS, Bradford & Bingley, to name just two, the Japanese Life Insurer Yamato was caught out investing in securities and losing out in the crash.  The similarity lies in the classic example of a financial services company getting caught out of its bread and butter business, trying to build profits in other ways, and taking shortcuts.

Japanese insurer Yamato Life collapses

Government officials tried to portray the bankruptcy as a special case. Yamato Life’s failure “is the result mainly of the company’s unique business model, whereby it covered its high operational costs with returns from investing in securities”, Shoichi Nakagawa, minister of financial services, said.

The Japanese life insurer said it was unable to close its books for half-year reporting after a sharp and rapid fall in the value of its equity holdings led debts to exceed assets by Y11.5bn.

Relevance to Bankwatch:

This is pure bad management, and banks that get caught out making speculative investments that are out of proportion to their financial capacity ought to be penalised.  In terms of regulation, to my mind the regulation should focus on reporting of off balance sheet items, and investments that are out of proportion to capital and profits.  This would warn consumers to avoid such firms, and the market would drive normalcy.