Troubled Japanese Firm to Abandon Indonesian Banking Unit

The troubled Japanese financial concern J Trust Co Ltd appears about to abandon its four-year-old campaign to turn around its notorious Indonesia unit, J Trust Bank Indonesia, according to the company’s president and CEO, Nobuyoshi Fujisawa (above), at J Trust’s presentation of its second-quarter results on Nov. 19 in Tokyo.

Attempts by Asia Sentinel to reach J Trust corporate officers with a detailed list of questions so far have gone unanswered.

The Tokyo-based financial conglomerate, with interests in banking, finance and other fields in South Korea, Indonesia, Cambodia, Thailand, Mongolia and Japan, counts among its shareholders the Kirkland, Washington-based Taiyo Pacific Funds LLP, whose former chief investment officer was Wilbur Ross, President Donald Trump’s commerce secretary. The California Public Employees Retirement System, or Calpers, was also brought in by Taiyo Pacific along with Invesco, its ultimate parent, and others.

J Trust faces lawsuits in several countries over its operations and has run into financial difficulty with several of its units. It is one of a gaggle of plaintiffs being sued in Mauritius and Singapore by Weston International Capital Ltd. and its subsidiaries over allegations that US$930 million was stolen by J Trust and other defendants in the theft of distressed assets that were never delivered. Weston’s crusade has since morphed into a massive lawsuit against 30 Indonesian government officials, Lebanese bankers and others.

Reporting by Asia Sentinel since 2016 over the sale of the bank and other controversies has since stirred an investigation by Indonesia’s formidable Corruption Eradication Commission, better known by its initials KPK. Among targets of the investigation are said to be the widely respected former Indonesian Vice President Boediono, who served as the Bank Central governor, and Kartika Wirjowatmodjo, then the head of the Bank Insurance Deposit Corporation, now the president director of Bank Mandiri, the country’s biggest bank. Sources in Jakarta say as many as 40 current and previous bank and government officials have been interviewed.

According to Fujisawa in a recorded translation of his presentation, J Trust intends to sell off 40 percent of the bank and cede operational control to anybody who wants to take it over --“some very organized banks from Japan, China, South Korea and Taiwan, any nationality is okay, to run the bank,” he told the shareholder meeting.

During the initial presentation, Hidehoku Hombu, the general manager of corporate planning, said, also in translation, that the Southeast Asia operation had lost ¥2.4 billion (US$21.07 million) on ¥6.2 billion of operating revenue, a stunning 25.8 percent loss, in the second quarter as loan defaults have climbed.

That presentation was followed by Fujisawa, who said: “We bought a failed bank, but we did not expect to fail not only once but twice in our restructuring efforts. If we had never bought J Trust Bank Indonesia, I suppose our earnings would be better.”

According to records in Japan, Fujisawa is an alumnus of several units of Livedoor Co. Ltd, a Tokyo-based Internet service provider and operator of a web portal and blog platform that capsized in 2006 in one of the biggest financial scandals in Japanese history.

Bank J Trust Indonesia was fashioned from the wreckage first of Bank Century Indonesia, which failed in 2008 with as much as US$800 million unaccounted for and much of it shifted illegally overseas. By one account, the bank had a negative net worth of the equivalent of US$805.9 million on a total asset base of US$505.6 million. The bank was suspected of being a slush fund for the Democrat Party.

Reconstituted as Bank Mutiara, the bank failed again in 2013 and was sold at auction in 2014 to J Trust under questionable circumstances. J Trust has recapitalized the bank twice, according to Fujisawa, so far unsuccessfully, with a total injected of US$235.5 million.

A full decade after Bank Century’s failure, the disappearance of such massive amounts of money from the Indonesian exchequer remains a cause for concern, with allegations rife in Jakarta that politicians from the acme of the Indonesian establishment were deeply involved.

As Asia Sentinel reported in a series of stories in 2017, although Bank Mutiara was ostensibly offered to 18 suitors, the sale appeared to be structured so that J Trust was the only bidder, with preferential, predetermined, no money down terms. While the Tokyo company supposedly agreed to pay US $368.0 million in cash, records at Indonesia’s Bank Deposit Insurance Corporation, Bank Central Indonesia and at J Trust itself show that J Trust actually paid only 6.8 percent of that amount, or US$24.14 million upfront, 33 days after the alleged sale date although the total was due on the date of the auction. From the records, it appears that several other government agencies were complicit in the transaction as well.

Whatever the details of the transaction, it is clear that the purchase was a disaster for J Trust and the bank deposit insurance corporation, an ostensibly commercial operation that nonetheless is closely tied to the government. J Trust Indonesia has never turned a cash profit in any quarter since.

Indeed, according to Fujisawa at the shareholder meeting, in a discouraging exchange: “Can we really turn things around at J Trust Bank Indonesia? I personally as president and owner of J Trust have some concern whether we can really reconstruct and run a bank which once went bankrupt. Those responsible for running things are of course diligent professionals. I asked them a very direct question. You said you can do it, but so far you have failed a number of times, so are you really up to the task?”

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 earnings meeting in Tokyo, J Trust is believed to be veering towards bankruptcy, partly because of the Indonesian operations and because of an equally trying deal with Group Lease, a Thailand-based financing company providing loans on motorcycles and agricultural equipment. 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 a massive loss on a Highlights Entertainment Ltd., a games machine manufacturer, as J Trust declared it a discontinued operation, resulting in a loss of Y2.8 billion (US$25 million).

J Trust’s stock has plummeted since February, the day before Ernst & Young Thailand flagged alleged fraud at Group Lease Thailand, J Trust’s biggest creditor. Even though that fraud allegation has been reversed on Group Lease’s books by E&Y, as the accounting firm is now known, J Trust Asia, led by Fujisawa, elected to convert US$180 million of Group Lease bonds it owns into contingent litigation claims of US$256 million in the Thai courts.

Market reports believe J Trust will be hamstrung by litigation indefinitely. This, along with J Trust Indonesia’s inability to stem its cash outflow as well as the now-discarded Keyholder and J Trust Asia and losses have driven the J Trust share price down by 60 percent since the Group Lease imbroglio began in 2017.

Litigation cost burn rates appear to be running at levels exceeding US$30 million annually, according to the earnings presentation, with no end in sight.

“We need to get back on our feet,” Fujisawa said, in reference to the company’s southeast Asian problems. That may take some time.