By: John Berthelsen

J Trust Co Ltd, the Tokyo-based financial conglomerate that bought into Indonesia’s troubled, politically-connected Bank Mutiara and renamed it Bank JTrust in 2014 under controversial circumstances, appears to be struggling with liquidity to the point where its existence could be threatened.

Despite that, according to reports in Vietnam, J Trust appears on the verge of taking over Vietnam’s troubled Construction Bank, whose chairman, Pham Cong Danh, was jailed last August along with 45 other bankers and businessmen in a massive multi-million-dollar lending scam. The jailing of Danh and the others was the latest in an attempt to clean up a Viet banking sector long plagued by bad debts, corruption and nepotism.

J Trust, however, has its own problems that would appear to complicate its bid for Construction Bank. According to a public statement quoting Nobiru Adachi, a J Trust senior executive, J Trust hopes to “contribute capital, technology support and financial operations” for the bank.  But according to J Trust’s own website, the conglomerate is down to just US$2.7 million in unrestricted capital, making it questionable what cash resources it can access to buy the Vietnamese bank.

The Japanese government’s minimum capital adequacy ratio for banks doing international business is 8 percent of the asset base, which would mean J Trust should require around US$120 million of capital on hand just to acquire the bank unless it can pull off another no money-down leveraged buyout like its Bank JTrust buyout from the Indonesian Bank Deposit Insurance Corporation, known by its Indonesian initials LPS.

J Trust Group’s share price has been on an inexorable downward path since May 2, 2013, when it peaked at ¥3940 (US$35.40) to its March 29, 2019 level of 378 a remarkable 90.4 percent decline. Nobuyoshi Fujisawa, J Trust’s flamboyant president and chief executive officer, appears to have burned through J Trust’s entire US$995 million war chest it acquired in its July 2013 Tokyo Stock Exchange Rights Offering, which Fujisawa bought in its entirety allegedly with his own funds.

Major shareholders, many of which have bailed out, originally included the Kirkland, Washington-based Taiyo Pacific Funds LLP, whose former chief investment officer was Wilbur Ross, President Donald Trump’s commerce secretary. Others are Vanguard, BlackRock, Dimensional Fund Advisers and State Street, all primarily index funds. The California Public Employees Retirement System, or Calpers, was also brought in by Taiyo Pacific along with Invesco, Taiyo’s ultimate parent, but Calpers is down to a holding of less than US$650,000 while Taiyo Funds itself cut its holdings of J Trust by 1,121,000 shares, reported by Bloomberg in October.

According to records in Japan, Fujisawa was the president of Livedoor Credit Co Ltd, Livedoor Services Co, Livedoor Factoring Co Ltd and Kazaka Services, now Partir Services Ltd. Livedoor, which functioned as an Internet service provider and operator of a web portal and blog platform, went under in 2006 when a probe of securities law violations caused its stock to nosedive, capsizing in a river of red ink that became one of Japan’s  biggest bankruptcies and scandals. Fujisawa was one of the few senior executives of Livedoor who escaped a prison sentence.

J Trust faces more than US$1 billion in lawsuits in several countries over its operations and has run into financial difficulty with several of its units. The group has invested as much as US$260.5 million since December 2014 in Bank Mutiara, formerly known as Bank Century and owned by Robert Tantular, who was jailed after it collapsed in 2008. The bank is widely believed in Jakarta to have been the repository of slush funds held for the Democratic Party, led by former President Susilo Bambang Yudhoyono. Tantular was quietly freed in December after having served half of his term, raising speculation of political interference.

According to its third-quarter results in November, Fujisawa said he intends to sell off 40 percent of the bank and cede operational control to anyone who wants to take it over. J Trust had injected only US$10 million into the bank since March 2017 until January 11, 2019 when an emergency Rp400 billion (US$28.1 million) subordinated loan had to be extended by J Trust Co. Ltd, Japan for the first time so the bank could retain a statutory auditors ongoing concern opinion qualification. Bank JTrust has now suffered more than US$212.6 million of net losses since J Trust and Fujisawa took over the bank. So far, according to sources in Indonesia, J Trust has been unable to find a suitor and may abandon the operation outright, potentially forcing the LPS and Bank Indonesia into another emergency bailout.  

The original sale of Bank Mutiara in 2014 has resulted in an investigation into the activities of the LPS and its then-head, Kartika Wirjoatmodjo, now CEO of Bank Mandiri, the country’s biggest bank, by the Indonesia Corruption Commission, or KPK. In December, the KPK seized former Bank Mutiara owner Robert Tantular’s passport to require him to testify in the investigation.

According to Hidehoko Hombu, the general manager of J Trust corporate planning, the Southeast Asia operation lost ¥2.4 billion (US$21.07 million) on ¥6.2 billion of operating revenue, a stunning 25.8 percent loss, in the third quarter of FY 2019 as loan defaults climbed.

That is only a small part of J Trust’s Southeast Asian troubles.  In 2017, JTrust Asia PTE (Singapore) went through a messy divorce after a failed hostile bid against the scandal-ridden Group Lease PCL hire-purchase firm, which provides leases for motorcycle and agricultural equipment purchases. That threatens to cost J Trust as much as US$250 million amid a welter of lawsuits in Thailand, Cyprus, the British Virgin Islands tax haven and Singapore.

J Trust Asia is suing Group Lease and its deposed president Mitsuji Konoshita, and several related companies including Cougar Pacific (Singapore), Aref Holdings, Adalene Ltd, Bellaven Ltd and Baguera Ltd., most of which are incorporated in Cyprus. 

According to Fujisawa’s third-quarter presentation, J Trust Japan also took a massive loss on Highlights Entertainment Ltd., a games machine manufacturer, discontinuing its operations, which resulted in a loss of ¥2.8 billion (US$25.2 million). It was also forced to abandon another acquisition, Keyholder Inc., a company that installed and sold imported entertaining devices. According to a public statement, Keyholder was transformed into a holding company, partly sold to Fujisawa personally and “moved to a phase towards establishing new pillars of profit drivers such as considering the start of the live entertainment business” and promoting K-Pop idols.

Other troubled operations include JTrust Investments Indonesia, the receptacle company for Bank JTrust bad loans in Jakarta. JTrust Investments Indonesia has allegedly acquired over US$300 million of nonperforming loans from the bank since October 2015. Published third-quarter 2019 figures show JTrust Investments Indonesia had a negative net worth of an astonishing ¥7605 million (negative US$69.4 million), wiping out JTrust Asia’s original investment of US$4 million and US$12 million in loans JTrust Investments Indonesia has with JTrust Asia.

Market reports say J Trust will be hamstrung by litigation indefinitely and by legal cost burn rates that appear to be running at levels exceeding US$30 million annually, according to the earnings presentation, with no end in sight.

Fujisawa himself said he would return to Japan to “oversee a strategy towards regrouping and improving the company’s health.”  Despite the upbeat presentation at the largely unattended earnings meeting in Tokyo, J Trust is believed to be veering towards bankruptcy, partly because of the Indonesian operations and because of the equally trying squabble with Group Lease. The two have been locked in lawsuits and legal counterclaims for months, leading Fujisawa to tell the shareholder meeting that “litigation has also affected corporate performance.”

J Trust Japan itself has hemorrhaged money again this year, taking more than US$100 million in losses on its Indonesian unit’s NPL portfolio in December and January. The bank’s net worth according to recently released IDX reports was down to US$49 million, a drop of the equivalent of US$62.1 million or 55.7 percent since FYE 2017 when it peaked. That required JTrust Japan to inject additional funds into Bank JTrust on an emergency basis in January. JTrust Asia did not have the funds itself so JTrust Japan had to guarantee the loan injection in a painful admission to its public stockholders.

Bank JTrust in fact has lost money every year it has been owned by J Trust and Fujisawa. Cumulative losses since November 20, 2014 exceed US$1.1 billion, or over 250 percent of its starting capital.

Fujisawa blames Ritsuo Ando, the Japanese former CEO of Bank JTrust for the losses, and his associate Shigeyoshi Asano while acknowledging that he himself over-delegated and dispatched Japanese consumer loan executives to the Indonesian bank who had no knowledge nor experience in running a retail bank in Indonesia and no ability to speak Indonesian.