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Murakami admits to insider trading allegations June 5, 2006

Posted by fukumimi in Finance, Japan, law, Politics.

Yoshiaki Murakami held a press conference at the TSE at 11am this morning, where he announced the following:

a) With regards to the allegations of insider trading, he said he now belives that the Securites and Exchange Laws could be interepreted in a way which would implicate him on charges of insider trading. Rather than embarking on a long legal battle, he said he will admit that his actions appear in hindsight to have been in violation of the relevant laws, and has signed an admission saying that he understands he has broken the law.

b) With regards to the Hankyu Raliways TOB of Hanshin Electric Raliway Company, Murakami's funds will cooperate with Hankyu so that the TOB will suceed.

c) He will be severing his ties with the fund (which he said he hoped would continue without him), and will no longer continue working in his current line of work.

Of course, we shouldn't take Mr Murakami's apparent pre-emptive confessions at face value. However, I suspect that prosecutors will be tempted (or pressured) to just slap Murakami on the wrist, and not go digging in to find evidence of other crimes by Murakami, Horie, and other Roppongi Mori Bldg neighbours and their acquaintances.

I'm sure Murakami has enough money to live out the rest of his natural life any way he sees fit.

Personally I'm sceptical that someone like Murakami would have been ignorant of the relevant regulations. He is a vocal proponent of corporate governance, but that is a different issue from corporate ethics. Compliance issues can be tackled in two ways. Don't do anything illegal (or even grey), or, don't get caught. My gut feeling tells me his press conference is a well managed stage act, and that he know what he was getting into, and took steps to cover his tracks, but was just a bit too sloppy. Perhaps he misread how much Horie and Livedoor might be a liability where they to get caught doing something illegal (as they were).

With regards to the Hankyu/Hanshin TOB, Hankyu come out as winners. Hanshin lose their independence, but they have only their management to blame. Hankyu have a lot of political clout, and I suspect that the timing of the investigation into Murakami's dealings was not unrelated to Hankyu seeing a chance to swallow up a regional competitor. There are several private raliway companies in the Kobe-Osaka-Kyoto corridor, and a merger between Hankyu and Hanshin does not appear to be the best fit. This is a point Murakami has made in the past, and as far as this point is concerned, I am in agreement.

Hanshin basically just has its main east-west Osaka-Kobe route, which competes with JR and Hankyu. The best fit for Hanshin probably was Keihan Electric Railway Company, which has a Osaka-Kyoto route. A Hanshin/Keihan merger would have created a third Kobe-Osaka-Kyoto player, which would be better for competition compared to Hankyu and JR owning all of the Osaka-Kobe lines. The Hanshin and Keihan terminals in Osaka are less than a kilometer apart, and it would probably not have been much of an issue to connect the two networks in some way.

Many of the private railway companies have grown by owning property at terminus stations and building out residential developments along their lines. Hankyu appears to have done well in this regard by building out its north-south lines towards Takarazuka and Itami. The main Kobe-Osaka-Kobe corridor is already built up and players like Hanshin really don't have much room for geographical growth, having missed the boat.

Looking at the wider picture around the Hankyu/Hanshin deal, Osaka's economic condition remains a big worry looming over regional companies. Last week it was announced that Osaka has been overtaken by Kanagawa (south of Tokyo, including the cities of Yokohama and Kawasaki) in terms of population size. Further, economic growth in Osaka lags that of Tokyo or Nagoya, and the Osaka city is in dire financial straits, and it may be forced to declare bankrupcy at some point in the future. The Kansai area appears to lag in political reform also, with lots of stories of mismanagement, wastefulness and involvement in criminal activity implicating public officials. Discrimination issues are much more visible in Osaka than in cities in east Japan, as are incidents of people exploiting initiatives which are attempting to eradicate discrimination.



1. from the inside, looking in » Murakami has been arrested - June 5, 2006

[…] Following up on my previous post, Murakami has been arrested this afternoon, and the offices of his funds raided. […]

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